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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the Quarterly Period Ended March 31, 2014
OR

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the Transition Period From
To
Commission file number 001-34626
PIEDMONT OFFICE REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________
Maryland
58-2328421
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
11695 Johns Creek Parkway
Ste. 350
Johns Creek, Georgia 30097
(Address of principal executive offices)
(Zip Code)
(770) 418-8800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large Accelerated filer
Accelerated filer
Non-Accelerated filer
Smaller reporting company 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
Number of shares outstanding of the Registrant’s
common stock, as of April 29, 2014:
154,270,549 shares
Table of Contents
FORM 10-Q
PIEDMONT OFFICE REALTY TRUST, INC.
TABLE OF CONTENTS
Page No.
PART I.
Financial Statements
Item 1.
Consolidated Financial Statements
4
Consolidated Balance Sheets—March 31, 2014 (unaudited) and December 31, 2013
5
Consolidated Statements of Income for the Three Months Ended March 31, 2014 (unaudited) and
2013 (unaudited)
6
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2014
(unaudited) and 2013 (unaudited)
7
Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2014
(unaudited) and the Year Ended December 31, 2013
8
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 (unaudited)
and 2013 (unaudited)
9
Condensed Notes to Consolidated Financial Statements (unaudited)
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
41
Item 4.
Controls and Procedures
42
PART II. Other Information
Item 1.
Legal Proceedings
43
Item 1A.
Risk Factors
43
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
43
Item 3.
Defaults Upon Senior Securities
43
Item 4.
Mine Safety Disclosures
43
Item 5.
Other Information
44
Item 6.
Exhibits
44
2
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q and other written or oral statements made by or on behalf of Piedmont Office Realty
Trust, Inc. (“Piedmont”) may constitute forward-looking statements within the meaning of the federal securities laws. In addition,
Piedmont, or its executive officers on Piedmont’s behalf, may from time to time make forward-looking statements in reports and other
documents Piedmont files with the Securities and Exchange Commission or in connection with oral statements made to the press,
potential investors, or others. Statements regarding future events and developments and Piedmont’s future performance, as well as
management’s expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements within the
meaning of these laws. Forward-looking statements include statements preceded by, followed by, or that include the words “may,”
“will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Examples of such statements in this
report include descriptions of our real estate, financing, and operating objectives; discussions regarding future dividends and stock
repurchases; and discussions regarding the potential impact of economic conditions on our portfolio.
These statements are based on beliefs and assumptions of Piedmont’s management, which in turn are based on currently available
information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding the
demand for office space in the sectors in which Piedmont operates, competitive conditions, and general economic conditions. These
assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual
results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond Piedmont’s
ability to control or predict. Such factors include, but are not limited to, the following:
•
Market and economic conditions remain challenging in some markets we operate in and the demand for office space, rental
rates and property values may continue to lag the general economic recovery causing our business, results of operations, cash
flows, financial condition and access to capital to be adversely affected or otherwise impact performance, including the
potential recognition of impairment charges;
•
The success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable
acquisitions;
•
Acquisitions of properties may have unknown risks and other liabilities at the time of acquisition;
•
Lease terminations or lease defaults, particularly by one of our large lead
tenants;
•
The impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases;
•
Changes in the economies and other conditions of the office market in general and of the specific markets in which we
operate;
•
Economic and regulatory changes, including accounting standards, that impact the real estate market generally;
•
Additional risks and costs associated with directly managing properties occupied by government tenants;
•
Adverse market and economic conditions may continue to negatively affect us and could cause us to recognize impairment
charges or otherwise impact our performance;
•
Availability of financing and our lending banks’ ability to honor existing line of credit commitments;
•
Costs of complying with governmental laws and
regulations;
•
Uncertainties associated with environmental and other regulatory
matters;
•
Potential changes in political environment and reduction in federal and/or state funding of our governmental tenants;
•
We may be subject to litigation, which could have a material adverse effect on our financial condition;
•
Changes in tax laws impacting REITs and real estate in general, as well as Piedmont’s ability to continue to qualify as a REIT
under the Internal Revenue Code (the “Code”); and
•
Other factors, including the risk factors discussed under Item 1A. of Piedmont’s Annual Report on Form 10-K for the year
ended December 31, 2013.
Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any
forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date
they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.
3
Table of Contents
PART I. FINANCIAL STATEMENTS
ITEM 1.CONSOLIDATED FINANCIAL
STATEMENTS
The information presented in the accompanying consolidated balance sheets and related consolidated statements of operations,
comprehensive income, stockholders’ equity, and cash flows reflects all adjustments that are, in management’s opinion, necessary for
a fair and consistent presentation of financial position, results of operations, and cash flows in accordance with U.S. generally
accepted accounting principles.
The accompanying financial statements should be read in conjunction with the notes to Piedmont’s financial statements and
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q and
with Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2013. Piedmont’s results of operations for the three
months ended March 31, 2014 are not necessarily indicative of the operating results expected for the full year.
4
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
(Unaudited)
March 31,
2014
December 31,
2013
Assets:
Real estate assets, at cost:
Land
$
Buildings and improvements, less accumulated depreciation of $997,350 and
$972,531 as of March 31, 2014 and December 31, 2013, respectively
Intangible lease assets, less accumulated amortization of $69,997 and $71,588
as of March 31, 2014 and December 31, 2013, respectively
Construction in progress
Real estate assets held for sale, net
682,429
$
686,359
3,129,993
3,154,001
69,144
73,359
28,847
24,269
13,939
13,995
3,924,352
3,951,983
13,855
14,388
9,271
6,973
22,196
31,145
147,360
138,293
751
394
28,154
24,771
180,097
180,097
464
24,176
8,545
8,759
273,709
281,790
3,191
3,319
Total real estate assets
Investments in and amounts due from unconsolidated joint ventures
Cash and cash equivalents
Tenant receivables, net of allowance for doubtful accounts of $273 and $346 as of
March 31, 2014 and December 31, 2013, respectively
Straight-line rent receivables
Restricted cash and escrows
Prepaid expenses and other assets
Goodwill
Interest rate swaps
Deferred financing costs, less accumulated amortization of $4,506 and $13,041 as of
March 31, 2014 and December 31, 2013, respectively
Deferred lease costs, less accumulated amortization of $123,582 and $125,882 as of
March 31, 2014 and December 31, 2013, respectively
Other assets held for sale, net
Total assets
Liabilities:
Unsecured debt, net of discount of $4,703 and $1,320 as of March 31, 2014 and
December 31, 2013, respectively
$
4,611,945
$
4,666,088
$
1,617,297
$
1,014,680
Secured debt
412,525
987,525
130,530
128,818
23,042
22,267
45,227
47,113
4,366
4,526
2,232,987
—
2,204,929
—
Accounts payable, accrued expenses, and accrued capital expenditures
Deferred income
Intangible lease liabilities, less accumulated amortization of $44,462 and $44,256 as of
March 31, 2014 and December 31, 2013, respectively
Interest rate swaps
Total liabilities
Commitments and Contingencies
Stockholders’ Equity:
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of March 31, 2014
or December 31, 2013
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of
March 31, 2014 or December 31, 2013
Common stock, $.01 par value, 750,000,000 shares authorized; 154,277,930 and
157,460,903 shares issued and outstanding as of March 31, 2014 and December 31,
2013, respectively
—
—
—
—
1,543
1,575
Additional paid-in capital
3,668,906
(1,231,209)
3,669,561
(1,305,321)
Cumulative distributions in excess of earnings
Other comprehensive income
11,562
20,278
2,377,345
2,459,550
1,613
1,609
2,378,958
2,461,159
Piedmont stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
See accompanying notes
5
4,611,945
$
4,666,088
Table of Contents
PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
(Unaudited)
Three Months Ended
March 31,
2014
2013
Revenues:
Rental income
$
110,904
$
106,055
Tenant reimbursements
24,929
25,465
487
631
136,320
132,151
58,271
52,155
33,644
28,825
14,573
9,009
4,555
4,548
111,043
94,537
25,277
37,614
(18,926)
(90)
(16,373)
(1,277)
Property management fee revenue
Expenses:
Property operating costs
Depreciation
Amortization
General and administrative
Real estate operating income
Other income (expense):
Interest expense
Other income/(expense)
Net recoveries/(loss) from casualty events and litigation settlements
(161)
3,042
Equity in income/(loss) of unconsolidated joint ventures
395
(266)
(16,240)
(17,416)
9,037
20,198
466
859
Income from continuing operations
Discontinued operations:
Operating income
Impairment loss
—
(6,402)
Loss on sale of real estate assets
—
(106)
Income/(loss) from discontinued operations
360
(5,543)
9,397
(4)
14,655
(4)
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Piedmont
$
9,393
$
14,651
$
0.06
$
0.12
Per share information – basic and diluted:
Income from continuing operations
Income/(loss) from discontinued operations
—
(0.03)
Net income available to common stockholders
$
0.06
Weighted-average common shares outstanding – basic
$
0.09
154,849,378
167,555,407
155,024,545
167,810,319
Weighted-average common shares outstanding – diluted
See accompanying notes.
6
Table of Contents
PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
Three Months Ended
March 31,
2014
Net income attributable to Piedmont
Other comprehensive income/(loss):
Effective portion of gain/(loss) on derivative instruments that are designated and qualify as
cash flow hedges (See Note 4)
Plus: Reclassification of previously recorded loss included in net income (See Note 4)
2013
(9,886)
(340)
1,170
769
Other comprehensive income/(loss)
(8,716)
Comprehensive income attributable to Piedmont
$
See accompanying notes
7
$ 14,651
$ 9,393
677
429
$ 15,080
Table of Contents
PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2013
AND FOR THE THREE MONTHS ENDED MARCH 31, 2014 (UNAUDITED)
(in thousands, except per share amounts)
Cumulative
Distributions
in Excess of
Earnings
Common Stock
Shares
Balance, December
167,556
31, 2012
Share
repurchases as
part of an
announced plan (10,246)
Additional
Paid-In
Capital
Amount
$ 1,676
$
3,667,051
(102)
—
$
(1,022,681)
(175,167)
Other
Comprehensive
Income/(Loss)
$
(7,160)
Noncontrolling
Interest
$
1,609
Total
Stockholders’
Equity
$
2,640,495
—
—
(175,269)
—
—
(91)
—
(15)
Offering costs
associated with
the issuance of
common stock
—
—
(91)
Dividends to
common
stockholders
($0.80 per share),
distributions to
noncontrolling
interest, and
dividends
reinvested
—
—
(197)
Shares issued and
amortized under
the 2007
Omnibus
Incentive Plan,
net of tax
151
1
2,143
—
—
—
2,144
Net income
attributable to
noncontrolling
interest
—
—
—
—
—
15
15
Net income
attributable to
Piedmont
—
—
—
98,728
—
—
98,728
Other
comprehensive
income
—
—
—
—
27,438
—
27,438
Balance, December
157,461
31, 2013
1,575
3,668,906
(1,231,209)
20,278
1,609
2,461,159
(32)
—
(52,647)
—
—
(52,679)
—
(47)
(30,858)
—
—
(30,905)
Share repurchases
as part of an
announced plan
Dividends to
common
stockholders
(3,183)
—
—
(132,089)
(132,301)
($0.20 per
share),
distributions to
noncontrolling
interest, and
dividends
reinvested
Shares issued and
amortized under
the 2007
Omnibus
Incentive Plan,
net of tax
—
—
702
—
—
—
702
Net income
attributable to
noncontrolling
interest
—
—
—
—
—
4
4
Net income
attributable to
Piedmont
—
—
—
9,393
—
—
9,393
Other
comprehensive
loss
—
—
—
—
—
(8,716)
Balance, March 31,
2014
154,278
$ 1,543
$
3,669,561
$
(1,305,321)
See accompanying notes
8
(8,716)
$
11,562
$
1,613
$
2,378,958
Table of Contents
PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
2014
2013
Cash Flows from Operating Activities:
Net income
$
9,397
$
14,655
Operating distributions received from unconsolidated joint ventures
266
463
33,727
29,684
774
594
14,960
—
14,346
8,964
—
6,402
636
594
266
(395)
106
—
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization of deferred financing costs
Settlement of forward starting interest rate swaps
Other amortization
Impairment loss on real estate assets
Stock compensation expense
Equity in loss/(income) of unconsolidated joint ventures
Loss on sale of real estate assets, net
Changes in assets and liabilities:
Increase in tenant and straight-line rent receivables, net
(1,371)
(9,685)
Decrease in restricted cash and escrows
43
Increase in prepaid expenses and other assets
Decrease in accounts payable and accrued expenses
9
(3,467)
(171)
(350)
(11,122)
720
2,033
70,053
42,025
Increase in deferred income
Net cash provided by operating activities
Cash Flows from Investing Activities:
Acquisition of real estate assets and related intangibles
Capitalized expenditures, net of accruals
(400)
(247,499)
(27,187)
(34,114)
22,322
3,403
Net sales proceeds from wholly-owned properties
Investments in unconsolidated joint ventures
Deferred lease costs paid
Net cash used in investing activities
—
(672)
(4,180)
(7,897)
(9,445)
(286,779)
(454)
(47)
Cash Flows from Financing Activities:
Deferred financing costs paid
Proceeds from debt
Repayments of debt
764,564
294,000
(737,000)
(11,000)
Repurchases of common stock as part of announced plan
(54,515)
(11)
Dividends paid and discount on dividend reinvestments
(30,905)
(33,570)
(58,310)
249,372
Net cash (used in)/provided by financing activities
Net increase in cash and cash equivalents
2,298
4,618
6,973
12,957
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
9,271
$
17,575
$
(1,836)
$
—
$
13,721
$
30,994
$
176
$
—
Supplemental Disclosures of Significant Noncash Investing and Financing Activities:
Change in accrued share repurchases as part of an announced plan
Accrued capital expenditures and deferred lease costs
Accrued deferred financing costs
See accompanying notes
9
Table of Contents
PIEDMONT OFFICE REALTY TRUST, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
1.Organization
Piedmont Office Realty Trust, Inc. (“Piedmont”) (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify
as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the acquisition and ownership of commercial
real estate properties throughout the United States, including properties that are under construction, are newly constructed, or have
operating histories. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarily
through Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the
management of its buildings through two wholly-owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office
Management, LLC. Piedmont owns 99.9% of, and is the sole general partner of, Piedmont OP and as such, possesses full legal control
and authority over the operations of Piedmont OP. The remaining 0.1% ownership interest of Piedmont OP is held indirectly by
Piedmont through its wholly-owned subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP.
Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through both consolidated and unconsolidated joint
ventures. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries
and joint ventures.
As of March 31, 2014, Piedmont owned 75 office properties, one redevelopment asset, and two office buildings through an
unconsolidated joint venture. Piedmont's 75 consolidated office properties comprise 21.1 million square feet of primarily Class A
commercial office space, and were 86.7% leased as of March 31, 2014. As of March 31, 2014, approximately 90% of Piedmont's
annualized lease revenue was generated from its primary markets: Atlanta, Boston, Chicago, Los Angeles, Minneapolis, the New York
Metropolitan Statistical Area, Texas (Dallas, Houston and Austin), and Washington, D.C.
Piedmont internally evaluates all of the real estate assets as one operating segment, and accordingly, does not report segment
information.
2.Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of Piedmont have been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include
all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial
statements. In the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which
are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods
are not necessarily indicative of a full year’s results and certain prior period amounts have been reclassified to conform to the current
period financial statement presentation. The reclassifications relate to the required presentation of income from discontinued
operations for properties sold during the three months ended March 31, 2014 and during the year ended December 31, 2013 (see Note
8), as well as reclassifying deferred common area maintenance costs from deferred lease costs to prepaid and other assets. None of
these reclassifications affect net equity or net income attributable to Piedmont as presented in previous periods.
Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable
interest entity of which Piedmont or any of its wholly-owned subsidiaries is considered the primary beneficiary, or any entity in which
Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. For further information, refer to the financial statements
and footnotes included in Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2013.
All inter-company balances and transactions have been eliminated upon consolidation.
Further, Piedmont has formed special purpose entities to acquire and hold real estate. Each special purpose entity is a separate legal
entity and consequently the assets of the special purpose entities are not available to all creditors of Piedmont. The assets owned by
these special purpose entities are being reported on a consolidated basis with Piedmont’s assets for financial reporting purposes only.
10
Table of Contents
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual
results could differ from those estimates.
Deferred Financing Costs
Costs incurred in connection with obtaining financing which are paid to service providers other than the lenders, or customary fees
paid to lenders which are not calculated based on the total commitment of the facility, are capitalized as deferred financing costs in the
accompanying consolidated balance sheets. These costs are amortized to interest expense on a straight-line basis (which approximates
the effective interest rate method) over the terms of the related financing arrangements.
Income Taxes
Piedmont has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and has operated as
such, beginning with its taxable year ended December 31, 1998. To qualify as a REIT, Piedmont must meet certain organizational and
operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income. As a REIT, Piedmont
is generally not subject to federal income taxes. Piedmont is subject to certain taxes related to the operations of properties in certain
locations, as well as operations conducted by its taxable REIT subsidiary, POH, which have been provided for in the financial
statements.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Accounting Standards Update No. 2014-08, Presentation of Financial
Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity ("ASU 2014-08"). The amendments in ASU 2014-08 change the criteria for the transactions
that qualify to be reported as discontinued operations, and enhance disclosures for transactions which meet the new criteria in this
area. Under this new guidance, disposals representing a strategic shift that has (or will have) a major effect on operations should be
presented as discontinued operations. The amendments in ASU 2014-08 are effective in the first quarter of 2015 for Piedmont, and
early adoption is permitted. Piedmont is currently evaluating the amendments of ASU 2014-08; however, these amendments are
expected to impact Piedmont's determination of which future property disposals qualify as discontinued operations, as well as
requiring additional disclosures about discontinued operations.
3.Debt
During the three months ended March 31, 2014, Piedmont drew down the entire principal of the $300 Million Unsecured 2013 Term
Loan, a delayed-draw loan facility established in December 2013. The proceeds of the $300 Million Unsecured 2013 Term Loan were
used to repay the $200 Million Mortgage Note and the $25 Million Mortgage Note, as well as a portion of the amounts outstanding
under the $500 Million Unsecured Line of Credit.
Additionally during the three months ended March 31, 2014, Piedmont, through its wholly owned operating partnership, Piedmont
OP, issued $400 million in aggregate principal amount of 4.450% senior notes which mature on March 15, 2024 (the “2014 Senior
Notes”). The 2014 Senior Notes were offered as notes registered under the Securities Act of 1933, as amended. Upon issuance of the
2014 Senior Notes, Piedmont OP received proceeds of approximately $399.2 million, reflecting a discount of approximately $0.8
million which will be amortized as interest expense under the effective interest method over the ten-year term of the 2014 Senior
Notes. In addition, in conjunction with the issuance, Piedmont settled five forward starting rate swaps, consisting of notional amounts
of $350 million. These swaps were settled in Piedmont's favor, resulting in a gain of approximately $15.0 million that was recorded as
accumulated other comprehensive income and is being amortized as an offset to interest expense over the ten-year term of the 2014
Senior Notes. See Note 4 for further detail. The proceeds from the 2014 Senior Notes were used to repay the $350 Million Secured
Pooled Facility, as well as a portion of the amounts outstanding under the $500 Million Unsecured Line of Credit.
Interest on the 2014 Senior Notes is payable semi-annually in arrears on March 1st and September 1st of each year, beginning on
September 1, 2014. The 2014 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by Piedmont.
Piedmont OP may, at its option, redeem the 2014 Senior Notes, in whole or in part, prior to December 15, 2023, at a redemption price
equal to the greater of (i) 100% of the principal amount of the 2014 Senior Notes to be redeemed and (ii) a “make-whole” amount,
plus any unpaid accrued interest. In addition, at any time on or after December 15, 2023, Piedmont OP may, at its option,
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redeem the 2014 Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2014 Senior
Notes to be redeemed plus unpaid accrued interest. The 2014 Senior Notes are subject to certain covenants that, subject to certain
exceptions: (a) limit the ability of Piedmont and Piedmont OP to, among other things, incur additional secured and unsecured
indebtedness; (b) limit the ability of Piedmont and Piedmont OP to merge, consolidate, sell, lease or otherwise dispose of their
properties and assets substantially as an entirety; and, (c) require Piedmont to maintain a pool of unencumbered assets. The 2014
Senior Notes are also subject to customary events of default which, if any of them occurs, would permit or require the principal of and
accrued interest on the 2014 Senior Notes to become or to be declared due and payable.
During the three months ended March 31, 2014, Piedmont incurred additional working capital borrowings of $68.0 million and,
utilizing a portion of the proceeds of the $300 Million Unsecured 2013 Term Loan and the 2014 Senior Notes issuance described
above, as well as other cash on hand, made repayments totaling $162.0 million on its $500 Million Unsecured Line of Credit.
Piedmont also made interest payments on all debt facilities, including interest rate swap cash settlements, of approximately $16.1
million and $15.7 million for the three months ended March 31, 2014 and 2013, respectively. For the three months ended March 31,
2014 and 2013, Piedmont capitalized interest of $0.4 million and $0, respectively.
As of March 31, 2014, Piedmont believes it is in compliance with its financial covenants on outstanding debt. Additionally, see Note 6
for a description of Piedmont’s estimated fair value of debt as of March 31, 2014.
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The following table summarizes the terms of Piedmont’s indebtedness outstanding as of March 31, 2014 and December 31, 2013 (in
thousands):
Amount Outstanding as of
Facility
Collateral
March 31,
2014
Maturity
Rate(1)
December 31,
2013
Secured (Fixed)
—
$200 Million Mortgage Note
Aon Center
4.87%
5/1/2014
$25 Million Mortgage Note
Aon Center
Nine Property
Collateralized
Pool (2)
5.70%
5/1/2014
—
25,000
4.84%
6/7/2014
—
350,000
US Bancorp Center
Four Property
Collateralized
Pool (3)
Las Colinas Corporate
Center I & II
1201 & 1225 Eye Stree
t
5.29%
5/11/2015
105,000
105,000
5.50%
4/1/2016
125,000
125,000
5.70%
10/11/2016
42,525
42,525
5.76%
11/1/2017
140,000
140,000
412,525
987,525
300,000
300,000
8/19/2016 (7)
272,000
366,000
6/1/2023
348,710
348,680
1/31/2019
300,000
—
3/15/2024
396,587
—
1,617,297
1,014,680
$350 Million Secured Pooled
Facility
$105 Million Fixed-Rate
Loan
$125 Million Fixed-Rate
Loan
$42.5 Million Fixed-Rate
Loan
$140 Million WDC
Fixed-Rate Loans
Subtotal/Weighted Average (4)
Unsecured (Variable and
Fixed)
$300 Million Unsecured 2011
Term Loan
$500 Million Unsecured Line
of Credit
$350 Million Unsecured
Senior Notes
$300 Million Unsecured 2013
Term Loan
$400 Million Unsecured
Senior Notes
5.56%
LIBOR +
1.45%
3.40% (8)
LIBOR +
1.20% (9)
4.45% (10)
2.98%
Total/ Weighted Average (4)
3.50%
(2)
(5)
1.34% (6)
Subtotal/Weighted Average (4)
(1)
$
11/22/2016
$
2,029,822
$
$
200,000
2,002,205
All of Piedmont’s outstanding debt as of March 31, 2014 and December 31, 2013 was interest-only debt.
Nine property collateralized pool, which was repaid in full on March 7, 2014, included: 1200 Crown Colony Drive, Braker Pointe III, 2 Gatehall Drive, One
and Two Independence Square, 2120 West End Avenue, 400 Bridgewater Crossing, 200 Bridgewater Crossing, and Fairway Center II.
(3)
Four property collateralized pool includes 1430 Enclave Parkway, Windy Point I and II, and 1055 East Colorado Boulevard.
(4)
Weighted average is based on contractual balance of outstanding debt and interest rates in the table as of March 31, 2014.
(5)
The $300 Million Unsecured 2011 Term Loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix,
absent any changes to Piedmont's credit rating, the rate on this facility to 2.69%.
(6)
Piedmont may select from multiple interest rate options with each draw, including the prime rate and various-length LIBOR locks. All LIBOR selections are
subject to an additional spread (1.175% as of March 31, 2014) over the selected rate based on Piedmont’s current credit rating. The outstanding balance as of
March 31, 2014 consisted of 30-day LIBOR draws at a rate of 0.16% (subject to the additional spread mentioned above).
(7)
Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of August 21,
2017) provided Piedmont is not then in default and upon payment of extension fees.
(8)
The $350 Million Senior Notes have a fixed coupon rate of 3.40%, however, as a result of the issuance of the notes at a discount, Piedmont recognizes an
effective interest rate on this debt issuance of 3.45%. After consideration of the impact of settled interest rate swap agreements, in addition to the issuance
discount, the effective interest rate on this debt is 3.43%.
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(9)
The $300 Million Unsecured 2013 Term Loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix,
absent any changes to Piedmont's credit rating, the rate for $200 million of the loan amount to 2.79% .
(10)
The $400 Million Senior Notes have a fixed coupon rate of 4.45%, however, as a result of the issuance of the notes at a discount, Piedmont recognizes an
effective interest rate on this debt issuance of 4.48%. After consideration of the impact of settled interest rate swap agreements, in addition to the issuance
discount, the effective interest rate on this debt is 4.10%.
4.Derivative Instruments
Risk Management Objective of Using Derivatives
In addition to operational risks which arise in the normal course of business, Piedmont is exposed to economic risks such as interest
rate, liquidity, and credit risk. In certain situations, Piedmont has entered into derivative financial instruments such as interest rate
swap agreements and other similar agreements to manage interest rate risk exposure arising from current or future variable rate debt
transactions. Interest rate swap agreements involve the receipt or payment of future known and uncertain cash amounts, the value of
which are determined by interest rates. Piedmont’s objective in using interest rate derivatives is to add stability to interest expense and
to manage its exposure to interest rate movements.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for
Piedmont making fixed-rate payments over the life of the agreements without changing the underlying notional amount. During the
three months ended March 31, 2014, Piedmont continued to use four interest rate swap agreements with a total notional value of $300
million to hedge the variable cash flows associated with its $300 Million Unsecured 2011 Term Loan. In addition, during the three
months ended March 31, 2014, Piedmont entered into four new interest rate swap agreements with a total notional value of $200
million to partially hedge the variable cash flows associated with its $300 Million Unsecured 2013 Term Loan.
In conjunction with the issuance of the 2014 Senior Notes (see Note 3) during the three months ended March 31, 2014, Piedmont
settled five previously outstanding forward starting swap agreements for a gain of approximately $15.0 million. The gain was recorded
as accumulated other comprehensive income and is being amortized as an offset to interest expense over the ten-year term of the 2014
Senior Notes. Piedmont classifies cash flows from the settlement of hedging derivative instruments in the same category as the
underlying exposure which is being hedged. As the cash settlement of approximately $15.0 million was the result of hedging
Piedmont's exposure to interest rate changes and their effect on interest expense, such cash settlement is classified as an operating cash
flow in the accompanying consolidated statements of cash flows.
The detail of Piedmont’s interest rate derivatives outstanding as of March 31, 2014 is as follows:
Notional Amount
(in millions)
Interest Rate Derivative
Effective Date
Maturity Date
Interest rate swap
$
125
11/22/2011
11/22/2016
75
11/22/2011
11/22/2016
50
11/22/2011
11/22/2016
50
11/22/2011
11/22/2016
50
1/30/2014
1/31/2019
50
1/30/2014
1/31/2019
50
1/30/2014
1/31/2019
50
1/30/2014
1/31/2019
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Total
$
500
Piedmont has elected to present its interest rate derivatives on its consolidated balance sheets on a gross basis as interest rate swap
asset and interest rate swap liabilities. The detail of Piedmont’s interest rate derivatives on a gross and net basis as of March 31, 2014
and December 31, 2013, respectively, is as follows (in thousands):
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March 31,
2014
Interest rate swaps classified as:
December 31,
2013
Gross derivative assets
Gross derivative liabilities
$
464
(4,366)
$
24,176
(4,526)
Net derivative asset/(liability)
$
(3,902)
$
19,650
All of Piedmont's interest rate derivative agreements outstanding for the periods presented were designated as cash flow hedges of
interest rate risk. As such, the effective portion of changes in the fair value of these derivatives designated as, and that qualify as, cash
flow hedges is recorded in other comprehensive income ("OCI") and reclassified into earnings as interest expense in the period that
the hedged forecasted transaction affects earnings. The effective portion of Piedmont's interest rate derivatives that was recorded in the
accompanying consolidated statements of income for the three months ended March 31, 2014 and 2013, respectively, was as follows:
Three Months Ended
Derivative in
Cash Flow Hedging
Relationships (Interest Rate Swaps) (in thousands)
March 31,
2014
March 31,
2013
Amount of loss recognized in OCI on derivative
$
9,886
$
340
Amount of previously recorded loss reclassified from accumulated OCI into interest expense
$
1,170
$
769
Piedmont estimates that approximately $4.5 million will be reclassified from accumulated other comprehensive loss to interest
expense over the next twelve months. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from
effectiveness testing on Piedmont’s cash flow hedges during the three months ended March 31, 2014 or 2013.
See Note 6 for fair value disclosures of Piedmont's derivative instruments.
Credit-risk-related Contingent Features
Piedmont has agreements with its derivative counterparties that contain a provision whereby if Piedmont defaults on any of its
indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Piedmont could also
be declared in default on its derivative obligations. If Piedmont were to breach any of the contractual provisions of the derivative
contracts, it would be required to settle its obligations under the agreements at their termination value of the fair values plus accrued
interest, or approximately $4.5 million as of March 31, 2014. Additionally, Piedmont has rights of set-off under certain of its
derivative agreements related to potential termination fees and amounts payable under the agreements, if a termination were to occur.
5.Variable Interest Entities
Variable interest holders who have the power to direct the activities of the VIE that most significantly impact the entity’s economic
performance and have the obligation to absorb the majority of losses of the entity or the right to receive significant benefits of the
entity must consolidate the VIE.
A summary of Piedmont’s interests in and consolidation treatment of its VIEs as of March 31, 2014 and December 31, 2013 is as
follows (net carrying amount in millions):
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Entity
Piedmont’s
%
Ownership
of Entity
Related
Building
Net Carrying
Amount as of
December 31,
2013
Net Carrying
Amount as of
March 31, 2014
Consolidated/
Unconsolidated
Primary Beneficiary
Considerations
1201 Eye Street
NW Associates,
LLC
49.5%
1201 Eye
Street
Consolidated
$
(5.9)
$
(5.3)
In accordance with the
partnership’s governing
documents, Piedmont is
entitled to 100% of the cash
flow of the entity and has sole
discretion in directing the
management and leasing
activities of the building.
1225 Eye Street N
W Associates, LLC
49.5%
1225 Eye
Street
Consolidated
$
(1.8)
$
(0.9)
In accordance with the
partnership’s governing
documents, Piedmont is
entitled to 100% of the cash
flow of the entity and has sole
discretion in directing the
management and leasing
activities of the building.
Piedmont 500 W.
Monroe Fee, LLC
100%
500 W.
Monroe
Consolidated
$
233.1
$
228.3
Suwanee Gateway
One, LLC
100%
Suwanee
Gateway
One
Consolidated
$
7.3
$
7.4
The fee agreement includes
equity participation rights for
the incentive manager, if
certain returns on investment
are achieved; however,
Piedmont has sole decision
making authority and is
entitled to the economic
benefits of the property until
such returns are met.
Medici Atlanta,
LLC
100%
The Medici
Consolidated
$
14.6
$
14.4
The fee agreement includes
equity participation rights for
the incentive manager, if
certain returns on investment
are achieved; however,
Piedmont has sole decision
making authority and is
entitled to the economic
benefits of the property until
such returns are met.
400 TownPark, LLC
100%
400
TownPark
Consolidated
$
22.6
$
22.3
The fee agreement includes
equity participation rights for
the incentive manager, if
certain returns on investment
are achieved; however,
Piedmont has sole decision
making authority and is
entitled to the economic
benefits of the property until
such returns are met.
The Omnibus Agreement with
the previous owner includes
equity participation rights for
the previous owner, if certain
financial returns are achieved;
however, Piedmont has sole
decision making authority and
is entitled to the economic
benefits of the property until
such returns are met.
Each of the VIEs described above has the sole purpose of holding office buildings and their resulting operations, and are classified in
the accompanying consolidated balance sheets in the same manner as Piedmont’s wholly-owned properties.
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6.Fair Value Measurement of Financial Instruments
Piedmont considers its cash, tenant receivables, restricted cash and escrows, accounts payable and accrued expenses, interest rate swap
agreements, and debt to meet the definition of financial instruments. The following table sets forth the carrying and estimated fair
value for each of Piedmont’s financial instruments, as well as its level within the GAAP fair value hierarchy, as of March 31, 2014
and December 31, 2013, respectively (in thousands):
March 31, 2014
Financial Instrument
Carrying Value
Estimated Fair Value
December 31, 2013
Level
Within Fair
Value
Hierarchy
Carrying Value
Estimated Fair Value
Level
Within Fair
Value
Hierarchy
Assets:
Cash and cash
equivalents (1)
$
Tenant receivables,
net (1)
$
Restricted cash and
escrows (1)
$
Interest rate swap
asset
$
9,271
$
9,271
Level 1 $
6,973
$
6,973
Level 1
22,196
$
22,196
Level 1 $
31,145
$
31,145
Level 1
751
$
751
Level 1 $
394
$
394
Level 1
464
$
464
Level 2 $
24,176
$
24,176
Level 2
Liabilities:
Accounts payable
and accrued
expenses (1)
Interest rate swap
liability
$
16,983
$
16,983
Level 1 $
16,680
$
16,680
Level 1
$
4,366
$
4,366
Level 2 $
4,526
$
4,526
Level 2
Debt
$
2,029,822
$
2,036,959
Level 2 $
2,002,205
$
2,004,870
Level 2
(1)
For the periods presented, the carrying value of these financial instruments approximates estimated fair value due to their short-term maturity.
Piedmont's debt was carried at book value as of March 31, 2014 and December 31, 2013; however, Piedmont's estimate of its fair
value is disclosed in the table above. Piedmont uses widely accepted valuation techniques including discounted cash flow analysis
based on the contractual terms of the debt facilities, including the period to maturity of each instrument, and uses observable
market-based inputs for similar debt facilities which have transacted recently in the market. Therefore, the fair values determined are
considered to be based on significant other observable inputs (Level 2). Scaling adjustments are made to these inputs to make them
applicable to the remaining life of Piedmont's outstanding debt. Piedmont has not changed its valuation technique for estimating the
fair value of its debt.
Piedmont’s interest rate swap and forward starting interest rate swap agreements presented above, and further discussed in Note 4, are
classified as “Interest rate swap” assets and liabilities in the accompanying consolidated balance sheets and were carried at fair value
as of March 31, 2014 and December 31, 2013. The valuation of these derivative instruments was determined using widely accepted
valuation techniques including discounted cash flow analysis based on the contractual terms of the derivatives, including the period to
maturity of each instrument, and uses observable market-based inputs, including interest rate curves and implied volatilities.
Therefore, the fair values determined are considered to be based on significant other observable inputs (Level 2). In addition,
Piedmont considered both its own and the respective counterparties’ risk of nonperformance in determining the fair value of its
derivative financial instruments by estimating the current and potential future exposure under the derivative financial instruments that
both Piedmont and the counterparties were at risk for as of the valuation date. The credit risk of Piedmont and its counterparties was
factored into the calculation of the estimated fair value of the interest rate swaps; however, as of March 31, 2014 and December 31,
2013, this credit valuation adjustment did not comprise a material portion of the estimated fair value. Therefore, Piedmont believes
that any unobservable inputs used to determine the fair values of its derivative financial instruments are not significant to the fair value
measurements in their entirety, and does not consider any of its derivative financial instruments to be Level 3 assets or liabilities.
7.Commitments and Contingencies
Commitments Under Existing Agreements
Certain lease agreements include provisions that, at the option of the tenant, may obligate Piedmont to provide funding for capital
improvements. Under its existing lease agreements, Piedmont may be required to fund significant tenant improvements, leasing
commissions, and building improvements. In addition, certain agreements contain provisions that require Piedmont to issue corporate
or property guarantees to provide funding for capital improvements or other financial obligations. Further, Piedmont classifies such
tenant and building improvements into two classes: (i) improvements which incrementally enhance the building's
17
Table of Contents
asset value by expanding its revenue generating capacity (“incremental capital expenditures”) and (ii) improvements which maintain
the building's existing asset value and its revenue generating capacity (“non-incremental capital expenditures”). As of March 31, 2014,
commitments for funding potential non-incremental capital expenditures for tenant improvements totaled approximately $72.0 million
related to Piedmont's existing lease portfolio over the respective lease terms, the majority of which Piedmont estimates may be
required to be funded over the next several years. For most of Piedmont’s leases, the timing of the actual funding of these tenant
improvements is largely dependent upon tenant requests for reimbursement. In some cases, these obligations may expire with the
leases without further recourse to Piedmont.
Additionally, as of March 31, 2014, commitments for incremental capital expenditures for tenant improvements associated with new
leases, primarily at value-add properties, totaled approximately $20.3 million.
Contingencies Related to Tenant Audits/Disputes
Certain lease agreements include provisions that grant tenants the right to engage independent auditors to audit their annual operating
expense reconciliations. Such audits may result in the re-interpretation of language in the lease agreements which could result in the
refund of previously recognized tenant reimbursement revenues, resulting in financial loss to Piedmont. Piedmont recorded additional
expense related to such tenant audits/disputes of approximately $0.3 million and $0 during the three months ended March 31, 2014
and March 31, 2013, respectively.
Letters of Credit
As of March 31, 2014, Piedmont was subject to a letter of credit of approximately $0.4 million, which reduces the total outstanding
capacity under its $500 Million Unsecured Line of Credit. This letter of credit agreement is scheduled to expire in July 2014; however,
it contains an automatic renewal feature, consisting of successive one-year renewal periods, subject to the satisfaction of the credit
obligation and certain other limitations.
8.Discontinued Operations
Piedmont has classified the results of operations related to the following properties as discontinued operations (in thousands):
Building(s) Sold
1111 Durham Avenue
Location
South Plainfield, New
Jersey
Date of Sale
Gain/(Loss) on Sale
March 28, 2013
$
$
3,752
Houston, Texas
Colorado Springs,
Colorado
May 1, 2013
$
16,246
$
45,552
November 1, 2013
$
7,959
$
29,676
8700 South Price Road
11107 and 11109 Sunset
Hills Road
Tempe, Arizona
December 30, 2013
$
7,096
$
16,691
Reston, Virginia
March 19, 2014
$
$
22,322
1441 West Long Lake Road
Troy, Michigan
Held for Sale (1)
N/A
N/A
4685 Investment Drive
Troy, Michigan
Held for Sale (1)
N/A
N/A
1200 Enclave Parkway
350 Spectrum Loop
(1)
(9)
Net Sales Proceeds
(106)
During the three months ended March 31, 2014, Piedmont entered into a binding agreement to sell the 1441 West Long Lake Road building located in Troy,
Michigan, and the 4685 Investment Drive building located in Troy, Michigan to an unrelated third-party. As a result, Piedmont reclassified the buildings
from real estate assets held-for-use to real estate assets held-for-sale on its consolidated balance sheet as of March 31, 2014 and reclassified the operational
results of the properties as income from discontinued operations for prior periods to conform with current period presentation. The sale subsequently closed
on April 30, 2014.
Sale of 1111 Durham Avenue building
During the quarter ended March 31, 2013, Piedmont sold the 1111 Durham Avenue building in South Plainfield, New Jersey and
recorded an impairment charge of $6.4 million based on the difference between carrying value and fair value of the asset at the time it
was reclassified from real estate assets held-for-use (at cost) to real estate assets held for sale (at estimated fair value). The
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fair value measurement used in the evaluation of this non-financial asset was based upon the amount set forth in the purchaser's
original letter of intent which approximated the land value of the asset due to the age of construction and lack of near term leasing
prospects for the building.
Assets Held for Sale
The details comprising assets held for sale, consisting of the1441 West Long Lake Road building and the 4685 Investment Drive
building, are presented below (in thousands):
March 31, 2014
December 31, 2013
Real estate assets held for sale, net:
Land
$
Building and improvements, less accumulated depreciation of $6,227 and
$7,403 as of March 31, 2014 and December 31, 2013, respectively
Intangible lease assets, less accumulated amortization of $363 and $232
as of March 31, 2014 and December 31, 2013, respectively
Total real estate assets held for sale, net
$
2,402
2,402
10,650
10,575
887
1,018
$
13,939
$
13,995
$
1,131
$
1,113
Other assets held for sale, net:
Straight-line rent receivables
Deferred lease costs, less accumulated amortization of $501 and $583 as
of March 31, 2014 and December 31, 2013, respectively
Total other assets held for sale, net
2,206
2,060
$
$
3,191
3,319
Income from Discontinued Operations
The details comprising income from discontinued operations are presented below (in thousands):
Three Months Ended
March 31, 2014
March 31, 2013
Revenues:
Rental income
$
1,174
$
2,928
Tenant reimbursements
112
434
1,286
3,362
505
1,486
83
859
223
169
3
1
814
2,515
Expenses:
Property operating costs
Depreciation
Amortization
General and administrative
Other income/(expense)
(6)
12
(6)
12
Operating income, excluding gain/(loss) on sale
859
466
Impairment loss
—
(6,402)
Gain/(loss) on sale of real estate assets
—
(106)
Income/(loss) from discontinued operations
$
19
360
$
(5,543)
Table of Contents
9.Stock Based Compensation
Deferred Stock Awards
From time to time, Piedmont has granted deferred stock awards to its employees. The awards are determined by the Compensation
Committee of the board of directors of Piedmont and typically vest ratably over a multi-year period. In addition, Piedmont has adopted
a multi-year performance share program for certain of its employees whereby shares may be earned based on the relative performance
of Piedmont's total stockholder return as compared with a predetermined peer group's total stockholder return over a multi-year period.
Shares are not awarded until after the end of the third year in the performance period and vest immediately upon award.
A rollforward of Piedmont's deferred stock award activity for the three months ended March 31, 2014 is as follows:
Weighted-Average Grant
Date Fair Value
Shares
Unvested Deferred Stock Awards as of December 31, 2013
265,139
$
18.65
Deferred Stock Awards Granted During Three Months Ended March 31, 2014
103,345
$
16.45
(214)
$
18.66
(1,071)
$
18.93
$
18.03
Deferred Stock Awards Vested During Three Months Ended March 31, 2014
Deferred Stock Awards Forfeited During Three Months Ended March 31, 2014
Unvested Deferred Stock Awards as of March 31, 2014
367,199
The following table provides additional information regarding stock award activity during the three months ended March 31, 2014 and
2013, respectively (in thousands except for per share data):
Three Months Ended
March 31,
2014
March 31,
2013
Weighted-Average Grant Date Fair Value of Shares Granted During the Period
$
16.45
$
—
Total Grant Date Fair Value of Shares Vested During the Period
$
4
$
—
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A detail of Piedmont’s outstanding employee deferred stock awards as of March 31, 2014 is as follows:
Date of grant
April 5, 2011
Type of Award
Deferred Stock
Award
April 4, 2012
Deferred Stock
Award
April 4, 2012
Fiscal Year
2012-2014
Performance
Share Program
April 2, 2013
Deferred Stock
Award
April 2, 2013
Fiscal Year
2013-2015
Performance
Share Program
Deferred Stock
January 3, 2014 Award
Total
Grant
Date Fair
Value
Net Shares
Granted (1)
116,103
190,099
—
146,640
—
103,345
$
$
$
$
$
$
Vesting Schedule
Unvested Shares as of
March 31, 2014
19.40
Of the shares granted, 25% vested
on the date of grant, and 25%
vested or will vest on April 5,
2012, 2013, and 2014,
respectively.
36,674
17.53
Of the shares granted, 25% vested
on the date of grant, and 25%
vested or will vest on April 4,
2013, 2014, and 2015,
respectively.
109,812
17.42
Shares awarded, if any, will vest
immediately upon determination
of award in 2015.
19.47
Of the shares granted, 25% vested
on the date of grant, and 25%
vested or will vest on April 2,
2014, 2015, and 2016,
respectively.
18.91
Shares awarded, if any, will vest
immediately upon determination
of award in 2016.
16.45
Of the shares granted, 20% will
vest on January 3, 2015, 2016,
2017, 2018, and 2019,
respectively.
—
(2)
117,368
—
(2)
103,345
367,199
(1)
Amounts reflect the total grant, net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations through March 31, 2014.
(2)
Estimated based on Piedmont's cumulative total stockholder return ("TSR") for the respective performance period through March 31, 2014. As of March 31,
2014, Piedmont's TSR for each of these respective plans was below threshold. Such estimates are subject to change in future periods based on both
Piedmont's and its peers' stock performance and dividends paid.
During the three months ended March 31, 2014 and 2013, respectively, Piedmont recognized approximately $0.6 million and $0.6
million of compensation expense related to deferred stock awards, all of which related to the amortization of unvested shares. During
the three months ended March 31, 2014, a total of 127 shares were issued to employees, directors, and officers. As of March 31, 2014,
approximately $2.8 million of unrecognized compensation cost related to unvested deferred stock awards remained, which Piedmont
will record in its consolidated statements of income over a weighted-average vesting period of approximately one year.
10.Earnings Per Share
There are no adjustments to “Net income attributable to Piedmont” or “Income from continuing operations” for the diluted earnings
per share computations.
Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Net income per share-diluted is calculated as net income available to common
stockholders divided by the diluted weighted average number of common shares outstanding during the period, including unvested
deferred stock awards. Diluted weighted average number of common shares reflects the potential dilution under the treasury stock
method that would occur if the remaining unvested deferred stock awards vested and resulted in additional common shares
outstanding.
21
Table of Contents
The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the consolidated
statements of income for the three months ended March 31, 2014 and 2013, respectively (in thousands):
Three Months Ended
March 31, 2014
March 31, 2013
Weighted-average common shares – basic
Plus incremental weighted-average shares from time-vested conversions:
Deferred stock awards
154,849
167,555
176
255
Weighted-average common shares – diluted
155,025
167,810
22
Table of Contents
11.Guarantor and Non-Guarantor Financial Information
The following condensed consolidating financial information for Piedmont Operating Partnership, L.P. (the "Issuer"), Piedmont Office
Realty Trust, Inc. (the "Guarantor"), and the other directly and indirectly owned subsidiaries of the Guarantor (the "Non-Guarantor
Subsidiaries") is provided pursuant to the requirements of Rule 3-10 of Regulation S-X regarding financial statements of guarantors
and issuers of guaranteed registered securities. The principal elimination entries relate to investments in subsidiaries and intercompany
balances and transactions, including transactions with the Non-Guarantor Subsidiaries.
23
Table of Contents
Condensed Consolidated Balance Sheets
As of March 31, 2014
(in thousands)
Issuer
Non-Guarantor
Subsidiaries
Guarantor
Eliminations
Consolidated
Assets:
Real estate assets, at cost:
Land
$
Buildings and improvements, less
accumulated depreciation
Intangible lease assets, less
accumulated amortization
82,922
$
—
$
599,507
$
—
$
682,429
457,170
—
2,673,123
2,220
—
66,924
—
69,144
4,571
—
24,276
—
28,847
5,248
—
8,691
—
13,939
Total real estate assets
552,131
—
3,372,521
Investments in and amounts due
from unconsolidated joint
ventures
13,855
—
—
—
13,855
6,235
150
2,886
—
9,271
35,137
—
134,419
—
169,556
5,936,843
1,280,719
—
(7,217,562)
—
—
3,972,949
196
(3,973,145)
—
Notes receivable
Prepaid expenses, restricted cash,
escrows, and other assets
160,000
2,000
23,890
(185,890)
—
7,661
187
22,068
(1,011)
28,905
Goodwill
180,097
—
—
—
180,097
464
—
—
—
464
7,949
—
596
—
8,545
31,902
—
241,807
—
273,709
1,416
—
1,775
—
3,191
$
6,933,690
$ 5,256,005
$
3,800,158
$
(11,377,908)
$
4,611,945
$
1,641,187
$
—
$
574,525
$
(185,890)
$
2,029,822
Construction in progress
Real estate assets held for sale,
net
Cash and cash equivalents
Tenant and straight-line rent
receivables, net
Advances to affiliates
Investment in subsidiary
Interest rate swaps
Deferred financing costs, net
Deferred lease costs, net
Other assets held for sale, net
Total assets
(300)
3,129,993
(300)
3,924,352
Liabilities:
Debt
Accounts payable, accrued
expenses, and accrued capital
expenditures
Advances from affiliates
Deferred income
Intangible lease liabilities, net
Interest rate swaps
18,292
619
112,630
(1,011)
130,530
329,185
4,909,812
2,024,014
(7,263,011)
—
5,775
—
17,267
—
23,042
—
—
45,227
—
45,227
4,366
—
—
—
4,366
Total liabilities
Stockholders’ Equity:
1,998,805
4,910,431
2,773,663
—
1,543
—
Additional paid-in capital
3,972,949
3,669,561
196
Retained/(cumulative
distributions in excess of)
earnings
950,374
Other comprehensive loss
11,562
Common stock
Piedmont stockholders’
equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and
stockholders’ equity
$
(3,325,530)
(7,449,912)
—
45,149
—
—
—
4,934,885
345,574
1,024,882
—
—
1,613
4,934,885
345,574
1,026,495
6,933,690
$ 5,256,005
24
3,800,158
1,543
(3,973,145)
1,024,686
$
2,232,987
3,669,561
(1,305,321)
11,562
(3,927,996)
2,377,345
—
1,613
(3,927,996)
$
(11,377,908)
2,378,958
$
4,611,945
Table of Contents
Condensed Consolidated Balance Sheets
As of December 31, 2013
(in thousands)
Issuer
Non-Guarantor
Subsidiaries
Guarantor
Eliminations
Consolidated
Assets:
Real estate assets, at cost:
Land
$
Buildings and improvements, less
accumulated depreciation
Intangible lease assets, less
accumulated amortization
86,852
$
—
$
599,507
$
—
$
686,359
473,786
—
2,680,515
2,356
—
71,003
—
73,359
4,627
—
19,642
—
24,269
5,128
—
8,867
—
13,995
Total real estate assets
572,749
—
3,379,534
Investments in and amounts due
from unconsolidated joint
ventures
14,388
—
—
—
14,388
3,352
150
3,471
—
6,973
35,266
—
134,172
—
169,438
5,312,384
1,288,547
—
(6,600,931)
—
—
4,003,806
197
(4,004,003)
—
Notes receivable
Prepaid expenses, restricted cash,
escrows, and other assets
160,000
2,000
23,890
(185,890)
—
5,319
44
20,779
(977)
25,165
Goodwill
180,097
—
—
—
180,097
24,176
—
—
—
24,176
7,764
—
995
—
8,759
33,841
—
247,949
—
281,790
1,448
—
1,871
—
3,319
$
6,350,784
$ 5,294,547
$
3,812,858
$
(10,792,101)
$
4,666,088
$
1,038,570
$
—
$
1,149,525
$
(185,890)
$
2,002,205
Construction in progress
Real estate assets held for sale,
net
Cash and cash equivalents
Tenant receivables, net
Advances to affiliates
Investment in subsidiary
Interest rate swaps
Deferred financing costs, net
Deferred lease costs, net
Other assets held for sale, net
Total assets
(300)
3,154,001
(300)
3,951,983
Liabilities:
Debt
Accounts payable, accrued
expenses, and accrued capital
expenditures
Advances from affiliates
Deferred income
Intangible lease liabilities, net
Interest rate swaps
13,824
2,376
113,595
(977)
128,818
312,881
4,863,672
1,467,334
(6,643,887)
—
5,086
—
17,181
—
—
47,113
4,526
—
—
—
22,267
47,113
—
4,526
Total liabilities
Stockholders’ Equity:
1,374,887
4,866,048
2,794,748
—
1,575
—
Additional paid-in capital
4,003,806
3,668,906
197
Retained/(cumulative
distributions in excess of)
earnings
951,813
Other comprehensive loss
20,278
Common stock
Piedmont stockholders’
equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and
stockholders’ equity
$
(3,241,982)
(6,830,754)
—
42,656
—
—
—
4,975,897
428,499
1,016,501
—
—
1,609
4,975,897
428,499
1,018,110
6,350,784
$ 5,294,547
25
3,812,858
1,575
(4,004,003)
1,016,304
$
2,204,929
3,668,906
(1,231,209)
20,278
(3,961,347)
2,459,550
—
1,609
(3,961,347)
$
(10,792,101)
2,461,159
$
4,666,088
Table of Contents
Condensed Consolidated Statements of Income
For the three months ended March 31, 2014
(in thousands)
Issuer
Non-Guarantor
Subsidiaries
Guarantor
Eliminations
Consolidated
Revenues:
Rental income
$
17,400
$
—
$
95,157
$
(1,653)
$
110,904
3,861
—
21,179
(111)
24,929
—
—
4,171
(3,684)
487
21,261
—
120,507
(5,448)
136,320
10,044
—
53,878
(5,651)
58,271
Depreciation
5,840
—
27,804
—
33,644
Amortization
1,111
—
13,462
—
14,573
General and administrative
4,469
77
5,961
(5,952)
4,555
21,464
77
101,105
(11,603)
111,043
(77)
19,402
6,155
25,277
(9,120)
—
(12,939)
3,133
(18,926)
2,762
35
246
1,351
—
1,691
—
(266)
—
—
—
(266)
(5,273)
35
(11,002)
—
(16,240)
(5,476)
(42)
8,400
Tenant reimbursements
Property management fee revenue
Expenses:
Property operating costs
(203)
Real estate operating income/(loss)
Other income (expense):
Interest expense
Other income/(expense)
Net recoveries from casualty events
and litigation settlements
Equity in loss of unconsolidated
joint ventures
Income/(loss) from continuing
operations
Discontinued operations:
Operating income/(loss)
Loss on sale of real estate assets
Income/(loss) from discontinued
operations
Net income/(loss) attributable to
Piedmont
3,042
6,155
9,037
—
(14)
—
466
(106)
—
—
—
(106)
374
—
(14)
—
360
6,155
9,397
(42)
—
$
(90)
480
(5,102)
Net income/(loss)
Less: Net income attributable to
noncontrolling interest
(3,133)
(5,102)
8,386
—
$
(42)
26
—
(4)
$
8,382
$
6,155
(4)
$
9,393
Table of Contents
Condensed Consolidated Statements of Income
For the three months ended March 31, 2013
(in thousands)
Issuer
Non-Guarantor
Subsidiaries
Guarantor
Eliminations
Consolidated
Revenues:
Rental income
$
16,959
$
—
$
90,314
$
(1,218)
$
106,055
3,848
—
21,686
(69)
25,465
—
—
3,458
(2,827)
631
20,807
—
115,458
(4,114)
132,151
Property operating costs
9,435
—
47,017
(4,297)
52,155
Depreciation
5,520
—
23,305
—
28,825
Amortization
1,212
—
7,797
—
9,009
General and administrative
4,377
118
5,417
(5,364)
4,548
20,544
118
83,536
(9,661)
94,537
(118)
31,922
5,547
37,614
(3,624)
—
(15,891)
3,142
(16,373)
2,779
43
(957)
(3,142)
(1,277)
58
—
(219)
—
(161)
395
—
—
—
395
(392)
43
(17,067)
(129)
(75)
14,855
5,547
20,198
470
—
389
—
859
(6,402)
—
—
—
(6,402)
(5,932)
—
389
—
(5,543)
(6,061)
(75)
15,244
5,547
Tenant reimbursements
Property management fee revenue
Expenses:
263
Real estate operating income/(loss)
Other income (expense):
Interest expense
Other income/(expense)
Net recoveries/(loss) from casualty
events and litigation settlements
Equity in income of unconsolidated
joint ventures
Income/(loss) from continuing
operations
Discontinued operations:
Operating income
Impairment loss
Income/(loss) from discontinued
operations
Net income/(loss)
Less: Net income attributable to
noncontrolling interest
Net income/(loss) attributable to
Piedmont
—
$
(6,061)
—
$
(75)
27
—
15,240
14,655
—
(4)
$
(17,416)
$
5,547
(4)
$
14,651
Table of Contents
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2014
(in thousands)
Issuer
Net Cash Provided by Operating Activities $
21,395
Cash Flows from Investing Activities:
Investment in real estate assets and real estate
related intangibles, net of accruals
Net sales proceeds from wholly-owned
properties
(6,875)
—
22,322
—
Deferred lease costs paid
$
594
(720)
Net cash provided by/(used in) investing
activities
Cash Flows from Financing Activities:
Non-Guarantor
Subsidiaries
Guarantor
14,727
$
41,908
Eliminations
$
(20,712)
—
6,156
Consolidated
$
70,053
—
(27,587)
—
22,322
—
(3,460)
—
(4,180)
—
(24,172)
—
(9,445)
(454)
—
—
—
764,564
—
—
—
764,564
Repayments of debt
Repurchases of common stock as part of
announced plan
(162,000)
—
—
(737,000)
—
(54,515)
(Distributions to)/repayments from affiliates
Dividends paid and discount on dividend
reinvestments
(635,349)
Deferred financing costs paid
(454)
Proceeds from debt
—
84,826
—
(594)
Net increase/(decrease) in cash and cash
equivalents
2,883
—
Cash and cash equivalents, beginning of
period
3,352
150
6,235
556,679
$
150
28
—
(18,321)
3,471
2,886
(30,905)
(6,156)
(585)
$
—
(6,156)
—
(30,905)
(33,239)
$
—
(54,515)
Net cash used in financing activities
Cash and cash equivalents, end of period
(575,000)
$
(58,310)
—
2,298
—
6,973
—
$
9,271
Table of Contents
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2013
(in thousands)
Issuer
Net Cash Provided by Operating Activities $
4,103
Non-Guarantor
Subsidiaries
Guarantor
$
177
$
32,198
Eliminations
$
5,547
Consolidated
$
42,025
Cash Flows from Investing Activities:
Investment in real estate assets and real estate
related intangibles, net of accruals
Net sales proceeds from wholly-owned
properties
(2,534)
—
3,403
—
—
—
Investments in unconsolidated joint ventures
(672)
—
—
—
(672)
Deferred lease costs paid
(2,218)
—
(5,679)
—
(7,897)
Net cash used in investing activities
Cash Flows from Financing Activities:
(2,021)
—
(284,758)
—
(286,779)
(47)
—
—
—
(47)
Deferred financing costs paid
—
(279,079)
(281,613)
3,403
Proceeds from debt
294,000
—
—
—
294,000
Repayments of debt
Repurchases of common stock as part of
announced plan
(11,000)
—
—
—
(11,000)
(11)
—
—
(11)
—
(Distributions to)/repayments from affiliates
Dividends paid and discount on dividend
reinvestments
(279,021)
33,315
251,253
—
(5,547)
—
(33,570)
—
3,932
(266)
251,253
Net (decrease)/increase in cash and cash
equivalents
6,014
(89)
(1,307)
—
4,618
Cash and cash equivalents, beginning of
period
62,371
239
(49,653)
—
12,957
Net cash provided by/(used in) financing
activities
Cash and cash equivalents, end of period
$
68,385
$
150
29
$
(50,960)
—
(33,570)
(5,547)
$
—
249,372
$
17,575
Table of Contents
12.Subsequent Events
Second Quarter Dividend Declaration
On April 30, 2014, the board of directors of Piedmont declared dividends for the second quarter of 2014 in the amount of $0.20 per
common share outstanding to stockholders of record as of the close of business on May 30, 2014. Such dividends are to be paid on
June 20, 2014.
30
Table of Contents
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and
notes thereto of Piedmont Office Realty Trust, Inc. (“Piedmont”). See also “Cautionary Note Regarding Forward-Looking Statements”
preceding Part I, as well as the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2013.
Liquidity and Capital Resources
We intend to use cash flows generated from the operation of our properties, proceeds from our $500 Million Unsecured Line of
Credit, and proceeds from selective property dispositions as our primary sources of immediate liquidity. As of the time of this filing,
we had approximately $230.6 million of capacity remaining under our $500 Million Unsecured Line of Credit available for future
borrowing. Depending on the timing and volume of our property acquisition and disposition activities and debt maturities, we may
also issue additional equity or debt securities from time to time. We may also seek additional borrowings from third-party lenders as
further sources of capital. The availability and attractiveness of terms for these additional sources of capital is highly dependent on
market conditions.
Our most consistent use of capital has historically been, and will continue to be, to fund capital expenditures related to our existing
portfolio of properties. During the three months ended March 31, 2014 and March 31, 2013 we incurred the following types of capital
expenditures (in thousands):
Three Months Ended
March 31, 2014
Capital expenditures for new development
$
Capital expenditures for redevelopment/renovations
Other capital expenditures, including tenant improvements
Total capital expenditures(1)
(1)
$
699
March 31, 2013
$
4
1,046
—
25,442
34,110
27,187
$
34,114
Of the total amounts capitalized, approximately $0.7 million and $0 relates to soft costs such as capitalized interest, payroll, and other general and
administrative expenses for the three months ended March 31, 2014 and 2013, respectively.
"Capital expenditures for new development" relate to the construction of a 300,000 square foot, 11-story office tower in Houston,
Texas. We broke ground on the development in April 2014 and anticipate expending approximately $60-$65 million for the project
over the course of the next fifteen months, and approximately $25 million in leasing commissions and tenant improvements during
subsequent lease-up of the property. "Capital expenditures for redevelopment/renovation" relate to repositioning our 3100 Clarendon
Boulevard building in Arlington, Virginia from governmental use to private sector use. We anticipate spending approximately
$25-$30 million related to the project and expect to complete the project by the end of this year. Following completion of the
redevelopment of the asset, we anticipate spending approximately $20 million in re-leasing costs, consisting of both leasing
commissions and tenant improvements.
"Other capital expenditures" include two types of specifically identified projects: (i) building improvement projects that we as the
owner may choose to perform at our discretion at any of our various properties; and (ii) tenant improvement allowances that we have
committed to as part of executed leases with our tenants, with the majority of such expenditures typically relating to the latter type.
During the three months ended March 31, 2014 and 2013, we committed to spend approximately $3.66 and $1.90 per square foot per
year of lease term, respectively, for tenant improvement allowances in conjunction with executing various leases. As of March 31,
2014, unrecorded contractual obligations for non-incremental tenant improvements related to our existing lease portfolio totaled $72.0
million, down from $98.5 million as of March 31, 2013. The timing of the funding of these commitments is largely dependent upon
tenant requests for reimbursement; however, we would anticipate that a significant portion of these improvement allowances may be
requested over the next 3 years based on when the underlying leases commence. In some instances, these obligations may expire with
the respective lease, without further recourse to us. Commitments for incremental capital expenditures associated with new leases,
primarily at value-add properties, totaled approximately $20.3 million as of March 31, 2014, down from $42.3 million as of March 31,
2013. Additionally, during the three months ended March 31, 2014 and 2013, we paid $4.2 million and $7.9 million , respectively, in
leasing commissions and committed to pay $1.67 and $1.01 per square foot per year of lease term, respectively.
31
Table of Contents
In addition to the amounts that we have committed to as part of already executed leases, we anticipate continuing to incur similar
market-based tenant improvement allowances and leasing commissions in conjunction with procuring future leases. Given that our
primary operating model is to lease large blocks of space to credit-worthy tenants, some of these items can result in significant capital
outlays. Both the timing and magnitude of such expenditures have yet to be determined and are highly dependent on competitive
market conditions of the respective office market at the time of lease negotiations. In particular, there are four blocks of space in
excess of 200,000 square feet in our Washington, D.C and Chicago portfolios that are currently vacant and we may grant significant
concession packages to secure new tenants for those spaces, among others.
Subject to the identification and availability of attractive investment opportunities and our ability to consummate such acquisitions on
satisfactory terms, acquiring new assets compatible with our investment strategy could also be a significant use of capital. In addition,
our board of directors has authorized a repurchase plan for our common stock for use when we believe that our stock is trading at a
meaningful discount to what we believe the fair value of our net assets to be and we may use capital resources to make purchases
under this plan. As of March 31, 2014, there was $37.2 million of authorized capacity remaining on the program which can be spent
prior to the program's expiration in October 2015.
Finally, although we currently have no debt maturing over the next twelve months, on a longer term basis, we expect to use capital to
repay debt when obligations become due. During the quarter ended March 31, 2014, we used the proceeds of a $400 million unsecured
senior note issuance, as well as a $300 million unsecured term loan to repay $575 million in secured debt which was scheduled to
mature during the first half of the year ending December 31, 2014. The remaining $125 million of proceeds was used to pay down
outstanding balances on our $500 Million Unsecured Line of Credit. In conjunction with the issuance of the $400 million unsecured
senior notes, and considering the historically low interest rate environment, we settled five forward starting interest rate swaps, at the
time of the issuance of the notes, resulting in a cash settlement in our favor of approximately $15.0 million.
The amount and form of payment (cash or stock issuance) of future dividends to be paid to our stockholders will continue to be largely
dependent upon (i) the amount of cash generated from our operating activities; (ii) our expectations of future cash flows; (iii) our
determination of near-term cash needs for debt repayments, development projects, and selective acquisitions of new properties;
(iv) the timing of significant expenditures for tenant improvements, building redevelopment projects, and general property capital
improvements; (v) long-term payout ratios for comparable companies; (vi) our ability to continue to access additional sources of
capital, including potential sales of our properties; and (vii) the amount required to be distributed to maintain our status as a REIT.
Given the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timing
differences in cash receipts and cash disbursements.
Results of Operations
Overview
Our income from continuing operations per share on a fully diluted basis decreased from $0.12 for the three months ended March 31,
2013 to $0.06 for the three months ended March 31, 2014. The current quarter's results include increases in income associated with
new leases commencing and properties acquired during or after the first quarter of 2013; however, this additional income was more
than offset by (i) the expiration of two large governmental tenants in our Washington, D.C. portfolio during 2013; (ii) rental rate roll
downs; and (iii) downtimes between lease expirations and the commencement of replacement leases. Additionally, the current
quarter's results include $3.0 million in insurance recoveries associated with previously recognized casualty losses and litigation
settlement expense. Finally, the current quarter reflects $2.5 million, or $0.02 per diluted share, of additional interest expense
primarily associated with higher outstanding debt balances during the current quarter as a result of property acquisitions made by
Piedmont during 2013 and shares repurchased pursuant to our stock repurchase plan.
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Comparison of the three months ended March 31, 2014 versus the three months endedMarch 31, 2013
Income from Continuing Operations
The following table sets forth selected data from our consolidated statements of income for the three months ended March 31, 2014
and 2013, respectively, as well as each balance as a percentage of total revenues for the same periods presented (dollars in millions):
March 31,
2014
March 31,
2013
%
$
Increase
(Decrease)
%
Revenue:
Rental income
$
$
110.9
106.1
$
4.8
Tenant reimbursements
24.9
25.5
(0.6)
0.5
0.6
(0.1)
Property management fee revenue
Total revenues
136.3
100 %
132.2
100 %
4.1
58.3
42 %
52.2
39 %
6.1
33.6
25 %
28.8
22 %
4.8
14.6
11 %
9.0
8%
5.6
4.5
3%
4.6
3%
(0.1)
25.3
19 %
37.6
28 %
(12.3)
(18.9)
)
(14%
(16.4)
(0.1)
—%
(1.3)
)
(12%
)
(1%
3.0
2%
(0.1)
—%
3.1
(0.3)
—%
0.4
—%
(0.7)
Expense:
Property operating costs
Depreciation
Amortization
General and administrative
Real estate operating income
Other income (expense):
Interest expense
Other income/(expense)
Net recoveries/(loss) from casualty events and
litigation settlements
Equity in income/(loss) of unconsolidated joint
ventures
(2.5)
1.2
Income from continuing operations
$
9.0
7% $
$
0.4
$
Income/(loss) from discontinued operations
20.2
(5.5)
15 % $
$
(11.2)
5.9
Revenue
Rental income increased from approximately $106.1 million for the three months ended March 31, 2013 to approximately $110.9
million for the three months ended March 31, 2014 primarily due to approximately $8.4 million of additional revenue attributable to
properties acquired during 2013 as well as the renewal of a lease at a higher rental rate with the sole tenant at our 1901 Market Street
building in Philadelphia, Pennsylvania. These increases were partially offset by the expiration of a 330,000 square foot lease at our
One Independence Square building in Washington, D. C. during March 2013 and a 220,000 square foot lease at our 3100 Clarendon
Boulevard building in December 2013.
Tenant reimbursements decreased from approximately $25.5 million for the three months ended March 31, 2013 to approximately
$24.9 million for the three months ended March 31, 2014. Although we recognized approximately $0.7 million of additional tenant
reimbursements associated with properties acquired during 2013 during the current period, these increases were more than offset by a
$1.3 million reduction in such reimbursements due to the expiration of a lease in December 2013 at our Aon Center building in
Chicago, Illinois. Although a significant portion of this space has been re-leased, such replacement tenants are in periods of
reimbursement abatement.
Expense
Property operating costs increased approximately $6.1 million for the three months ended March 31, 2014 compared to the same
period in the prior year primarily due to approximately $3.6 million of additional recoverable operating expenses attributable to
properties acquired during 2013. We also incurred higher recoverable utility and landscaping costs of $0.9 million and $0.4 million,
respectively, which in large part is due to the harsh 2013-2014 weather in markets in which we own and operate properties.
Depreciation expense increased approximately $4.8 million for the three months ended March 31, 2014 compared to the same period
in the prior year. The variance is largely attributable to depreciation on additional tenant and building improvements placed in service
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subsequent to January 1, 2013 which contributed approximately $2.6 million of the increase. The remainder of the increase is due to
additional depreciation recognized on new properties acquired during 2013.
Amortization expense increased approximately $5.6 million for the three months ended March 31, 2014 compared to the same period
in the prior year. Of the total variance, approximately $4.8 million of expense is due to additional amortization on new properties
acquired during 2013.
Other Income (Expense)
Interest expense increased approximately $2.5 million for the three months ended March 31, 2014 compared to the same period in the
prior year. The increase is attributable to higher outstanding balances during the current year primarily as a result of property
acquisitions during 2013 and shares repurchased pursuant to our stock repurchase plan, offset by lower average interest rates due to
refinancing activity during the first quarter of 2014.
The variance in other income/(expense) is due to acquisition costs of approximately $1.2 million incurred in the prior year associated
with acquisition transactions.
We recognized an increase in net recoveries of casualty loss and litigation settlement expense for the three months ended March 31,
2014 compared to the same period in the prior year of approximately $3.1 million. These recoveries are associated with the receipt of
insurance proceeds related to litigation settlement expense previously incurred, as well as insurance proceeds associated with damage
to certain of our assets in the New York/New Jersey markets as a result of Hurricane Sandy.
Equity in income/(loss) of unconsolidated joint ventures decreased approximately $0.7 million during the three months ended
March 31, 2014, as compared to the prior year. In August 2013, we purchased all of the remaining interests in three office properties
previously held through two unconsolidated joint ventures. The acquisition resulted in a decrease in equity in income/(loss) of
unconsolidated joint ventures as compared to the prior period, as the results of operations of these properties are now consolidated on
the same basis as our other wholly-owned properties. Also, operational income included in equity in income/(loss) of unconsolidated
joint ventures as compared to the prior period decreased due to the expiration of the sole tenant's lease at Two Park Center located in
Hoffman Estates, Illinois in December 2013.
Income/(Loss) from Discontinued Operations
The operations of assets that we have sold or classified as held for sale during any of the periods presented in the accompanying
statement of operations are classified as discontinued operations for all period presented (see Note 8 to our accompanying
consolidated financial statements for a complete listing of assets sold or reclassified as held for sale). Income/(loss) from discontinued
operations increased approximately $5.9 million for the three months ended March 31, 2014 compared to the same period in the prior
year primarily due to the recognition of an impairment charge in the prior period of $6.4 million at the 1111 Durham Avenue building
in South Plainfield, New Jersey. We do not expect that income/(loss) from discontinued operations will be comparable to future
periods, as such income is subject to the occurrence and timing of future property dispositions.
Funds From Operations (“FFO”), Core FFO, and Adjusted Funds from Operations (“AFFO”)
Net income calculated in accordance with U.S. generally accepted accounting principles ("GAAP") is the starting point for calculating
FFO, Core FFO, and AFFO. FFO, Core FFO, and AFFO are non-GAAP financial measures and should not be viewed as an alternative
measurement of our operating performance to net income. Management believes that accounting for real estate assets in accordance
with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have
historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating
results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use
of FFO, Core FFO, and AFFO, together with the required GAAP presentation, provides a more complete understanding of our
performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating,
financing, and investing activities.
We calculate FFO in accordance with the current National Association of Real Estate Investment Trusts ("NAREIT") definition as
follows: Net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment charges
(including our proportionate share of any impairment charges and/or gains or losses from sales of property related to investments in
unconsolidated joint ventures), plus depreciation and amortization on real estate assets (including our proportionate share of
depreciation and amortization related to investments in unconsolidated joint ventures). Other REITs may not define FFO in
accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our
computation of FFO may not be comparable to such other REITs.
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We calculate Core FFO as FFO (calculated as set forth above) less acquisition costs and other significant, non-recurring items, such as
the infrequent and non-recurring litigation settlements expense and casualty losses, and their subsequent insurance recoveries.
We calculate AFFO as Core FFO (calculated as set forth above) exclusive of the net effects of: (i) amortization associated with
deferred financing costs; (ii) depreciation of non real estate assets; (iii) straight-line lease revenue/expense; (iv) amortization of above
and below-market lease intangibles; (v) stock-based and other non-cash compensation expense; (vi) amortization of mezzanine
discount income; (vii) acquisition costs, and (viii) non-incremental capital expenditures (as defined below). Our proportionate share of
such adjustments related to investments in unconsolidated joint ventures are also included when calculating AFFO.
Reconciliations of net income to FFO, Core FFO, and AFFO are presented below (in thousands except per share amounts):
Three Months Ended
Per
Net income attributable to Piedmont
$
9,393
Per
Share(1)
March 31, 2014
$
0.06
Share(1)
March 31, 2013
$
14,651
$
0.09
Depreciation of real estate assets(2)
33,727
0.22
29,886
0.18
Amortization of lease-related costs(2)
14,804
0.09
9,220
0.05
—
—
6,402
0.04
106
—
—
—
Impairment loss
Loss on sale - wholly-owned properties
Funds From Operations
Adjustments:
$
Acquisition costs
$
Amortization of discount on senior notes
Depreciation of non real estate assets
Straight-line effects of lease revenue (2)
Acquisition costs
Non-incremental capital expenditures (3)
(1)
(2)
$
$
0.36
$
60,159
$
0.36
1,244
0.01
161
—
61,564
$
0.37
863
0.01
594
—
34
—
—
—
—
(0.06)
(0.01)
(1,065)
(66)
(13,821)
—
(0.09)
(1,244)
(19,920)
155,025
$
0.21
—
594
(1,364)
32,038
—
(0.02)
98
(4,032)
—
636
Net effect of amortization of below-market in-place lease intangibles
$
(0.01)
114
(9,412)
Stock-based and other non-cash compensation
Weighted-average shares outstanding – diluted
55,054
0.37
—
(3,042)
Deferred financing cost amortization
Adjusted Funds From Operations
$
66
Net loss/(recoveries) from casualty events and litigation settlements
Core Funds From Operations
Adjustments:
58,030
$
36,589
167,810
Based on weighted average shares outstanding –
diluted.
Includes amounts for wholly-owned properties, as well as such amounts for our proportionate ownership in unconsolidated joint ventures.
—
(0.01)
(0.12)
$
0.22
(3)
Piedmont defines non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements, leasing commissions,
and building capital that do not incrementally enhance the underlying assets' income generating capacity. Tenant improvements, leasing commissions,
building capital and deferred lease incentives incurred to lease space that was vacant at acquisition, leasing costs for spaces vacant for greater than one year,
leasing costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion
of a building, and renovations that either change the underlying classification from a Class B to a Class A property or enhance the marketability of a building
are excluded from this measure.
Property and Same Store Net Operating Income (Cash Basis)
Property Net Operating Income on a cash basis ("Property NOI") is a non-GAAP measure which we use to assess our property-level
operating results. It is calculated as real estate operating income with the add-back of corporate general and administrative expense,
depreciation and amortization, impairment losses, and the deduction of income associated with property management performed by
Piedmont for other organizations. We present this measure on a cash basis, which eliminates the effects of straight lined rents and fair
value lease revenue. We use this measure as a proxy for the cash generated by our real estate properties. Same Store Net Operating
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Income on a cash basis ("SSNOI") is another non-GAAP measure very similar to Property NOI, however, SSNOI only reflects
Property NOI attributable to the properties owned or placed in service during the entire span of the current and prior year reporting
periods. SSNOI excludes amounts attributable to unconsolidated joint venture assets. We believe SSNOI is an important measure
because it allows us to compare the cash flows generated by our same real estate properties from one period to another. Other REITs
may calculate SSNOI differently and our calculation should not be compared to that of other REITs.
The following table sets forth our Property NOI and SSNOI with a reconciliation to net income attributable to Piedmont (GAAP basis)
for the three months ended March 31, 2014 and 2013, respectively (in thousands):
Three Months Ended
March 31,
2014
Net income attributable to Piedmont (GAAP basis)
$
Net income attributable to noncontrolling interest
9,393
$
14,651
4
4
Interest expense
18,926
16,373
Depreciation (1)
33,841
29,984
Amortization (1)
14,804
9,220
Acquisition costs
66
1,244
Impairment loss (1)
—
6,402
Net loss/(recoveries) from casualty events and litigation settlements (1)
Other (income)/expense(1)
Straight line rent effects of lease revenue(1)
Amortization of lease-related intangibles(1)
$
Net operating loss/(income) from:
Acquisitions(3)
Dispositions(4)
Change period over period in Same Store NOI (cash basis)
4,582
(259)
4,609
(356)
30
(9,412)
(1,364)
21
(4,032)
(1,065)
67,675
$
(2,704)
382
$
61,895
)
(14.8%
77,216
(860)
(1,022)
(5,798)
(364)
Other investments(5)
Same Store NOI (cash basis)
—
106
General & administrative expenses(1)
Management fee revenue(2)
Property NOI (cash basis)
161
(3,042)
Loss on sale of properties (1)
(1)
March 31,
2013
$
72,630
N/A
Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to
unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn
the revenue.
(3)
Acquisitions consist of Arlington Gateway in Arlington, Virginia, purchased on March 4, 2013; 5 & 15 Wayside Road in Burlington, Massachusetts, purchased
on March 22, 2013; Royal Lane Land in Irving, Texas, purchased on August 1, 2013; 5301 Maryland Way in Brentwood, Tennessee, 4685 Investment Drive in
Troy, Michigan, and 2020 West 89th Street in Leawood, Kansas, the remaining equity interests in which were purchased on August 12, 2013; 6565 North
MacArthur Boulevard in Irving, Texas, purchased on December 5, 2013; One Lincoln Park in Dallas, Texas, purchased on December 20, 2013; and 161
Corporate Center in Irving, Texas, purchased on December 30, 2013.
(4)
Dispositions consist of 1111 Durham Avenue sold on March 28, 2013; 1200 Enclave Parkway in Houston, Texas, sold on May 1, 2013; 350 Spectrum Loop in
Colorado Springs, Colorado, sold on November 1, 2013; 8700 South Price Road in Tempe, Arizona, sold on December 30, 2013; and 11107 and 11109 Sunset
Hills Road in Reston, Virginia, sold on March 19, 2014.
(5)
Other investments consist of operating results from our investments in unconsolidated joint ventures and our redevelopment project at 3100 Clarendon
Boulevard.
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Overview
Our portfolio is a national portfolio located in several geographic markets. We typically lease space to large, creditworthy corporate or
governmental tenants on a long-term basis. Our average lease is approximately 30,000 square feet with 7.3 years of lease term
remaining as of March 31, 2014. As a result, rent roll ups and roll downs which we experience as a result of re-leasing can fluctuate
widely between markets, between buildings, and between tenants within a given market depending on when a particular lease is
scheduled to expire. Over the last several years we worked through a period of high lease expirations which have temporarily
negatively impacted our SSNOI. We have executed 800,000 square feet of leases that have yet to commence as of March 31, 2014; we
have 2,200,000 square feet of commenced leases in some form of rental abatement; and, we have certain significant leases which were
renewed or replaced at lower rental rates than the previous leases.
Occupancy
Excluding one property that was not in service due to a redevelopment project as of March 31, 2014, our portfolio in total was 86.7%
leased as of March 31, 2014, comparable to 86.0% leased as of March 31, 2013. Scheduled expirations over the next three years for
the portfolio as a whole are limited to less than 6% of our Annualized Lease Revenue ("ALR") in any given year; therefore, the
majority of our leasing efforts over the next several years will be focused on leasing currently vacant space. To the extent we are able
to execute leases for currently vacant space, this absorption, plus additional rental payments scheduled to begin once related rental
abatement periods expire and leases commence, should have a favorable impact on our SSNOI comparisons.
Impact of Downtime, Abatement Periods, and Rental Rate Changes
We have executed a large number of leasing transactions over the past several years, some of which had not commenced as of March
31, 2014. Commencement of new leases typically occurs 6-24 months from the execution date after refurbishment of the space is
completed and downtime between leases can negatively impact SSNOI. As of March 31, 2014, approximately 0.8 million square feet
of executed leases for currently vacant space had not yet commenced. Office leases also typically contain upfront rental abatement
periods which delay the cash flow benefits of the lease even once a lease has commenced. As of March 31, 2014, approximately 2.2
million square feet of commenced leases were in some form of abatement. Additionally, in some cases over the last several years, we
have entered into leases which commenced at lower market rental rates than the previous tenant's rental rate which expired; negatively
impacting SSNOI comparisons once the new lease commences.
All of the above items negatively impacted our SSNOI for the quarter ended March 31, 2014 as compared to the quarter ended March
31, 2013. Specifically, several new leases replacing the expired BP lease at the Aon Center building provide the new tenants with
gross rental abatements and there will be approximately five months of downtime until the commencement of one of the more
significant replacement leases. Another contributor of the 14.8% decrease in SSNOI between the first quarter of 2013 and the first
quarter of 2014 was the expiration of a large governmental lease at One Independence Square in our Washington, D.C. portfolio
during March 2013 and the resulting downtime as we seek a replacement tenant or tenants. Finally, the restructuring of the
Independence Blue Cross lease at the 1901 Market Street building during 2013 also negatively impacted SSNOI comparisons for the
first quarter of 2014 because prior to the restructuring the tenant made a large lump sum rental payment once a year during the first
quarter of each calendar year; however, under the restructured lease, rental payments have been spread evenly throughout the year.
On a prospective basis, we anticipate that SSNOI comparisons will begin to improve during the last six months of 2014 as certain
significant leases for currently vacant space commence and rental abatement periods expire. Any absorption of currently vacant space
in the portfolio due to additional new leasing activity could also favorably impact comparisons depending on commencement dates
and abatement periods of the new lease.
Election as a REIT
We have elected to be taxed as a REIT under the Code and have operated as such beginning with our taxable year ended
December 31, 1998. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement
to distribute at least 90% of our adjusted REIT taxable income, computed without regard to the dividends-paid deduction and by
excluding net capital gains attributable to our stockholders, as defined by the Code. As a REIT, we generally will not be subject to
federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we may be
subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification
is lost and/or penalties, unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely
affect our net income and net cash available for distribution to our stockholders. However, we believe that we are organized and
operate in such a manner as to qualify for treatment as a REIT and intend to continue to operate in the foreseeable future in such a
manner that we will remain qualified as a REIT for federal income tax purposes. We have elected to treat Piedmont Office Holdings,
Inc. (“POH”),
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a wholly-owned subsidiary of Piedmont, as a taxable REIT subsidiary. We perform non-customary services for tenants of buildings
that we own, including solar power generation, real estate and non-real estate related-services; however, any earnings related to such
services performed by our taxable REIT subsidiary are subject to federal and state income taxes. In addition, for us to continue to
qualify as a REIT, our investments in taxable REIT subsidiaries cannot exceed 25% of the value of our total assets.
Inflation
We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are
provisions in the majority of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation.
These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax, and insurance
reimbursements on a per square-foot basis, or in some cases, annual reimbursement of operating expenses above certain per
square-foot allowance. However, due to the long-term nature of the leases, the leases may not readjust their reimbursement rates
frequently enough to fully cover inflation.
Off-Balance Sheet Arrangements
We are not dependent on off-balance sheet financing arrangements for liquidity. Our off-balance sheet arrangements consist of our
investments in unconsolidated joint ventures and operating lease obligations related to ground leases at certain of our properties. The
unconsolidated joint ventures in which we currently invest are prohibited by their governing documents from incurring debt. For
further information regarding our commitments under operating lease obligations, see the Contractual Obligations table below.
Application of Critical Accounting Policies
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with
GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions.
These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or
interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting
policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies
may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.
The critical accounting policies outlined below have been discussed with members of the Audit Committee of the board of directors.
Investment in Real Estate Assets
We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future
benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income attributable to
Piedmont. The estimated useful lives of our assets by class are as follows:
Buildings
Building improvements
Land improvements
Tenant improvements
Intangible lease assets
40 years
5-25 years
20-25 years
Shorter of economic life or lease term
Lease term
Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real properties, it is our policy to allocate the purchase price of properties to acquired tangible assets,
consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and
below-market leases, other value of in-place leases, based on their estimated fair values.
The fair values of the tangible assets of an acquired property (which includes land and buildings) are determined by valuing the
property as if it were vacant, and the “as-if-vacant” value is then allocated to land and building based on our determination of the fair
value of these assets. We determine the as-if-vacant fair value of a property using methods similar to those used by independent
appraisers. Factors considered by us in performing these analyses include an estimate of carrying costs during the expected lease-up
periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate
taxes, insurance, and other operating expenses and estimates of lost rental revenue during the expected lease-up periods
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based on current market demand. We also estimate the cost to execute similar leases including leasing commissions, legal, and other
related costs.
The fair values of above-market and below-market in-place lease values are recorded based on the present value (using an interest rate
that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to
the in-place leases and (ii) our estimate of market rates for the corresponding in-place leases, measured over a period equal to the
remaining terms of the leases, taking into consideration the probability of renewals for any below-market leases. The capitalized
above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to
rental revenues over the remaining terms of the respective leases.
The fair values of in-place leases include an estimate of the direct costs associated with obtaining the acquired or "in place" tenant,
estimates of opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. The amount capitalized as
direct costs associated with obtaining a tenant include commissions, tenant improvements, and other direct costs and are estimated
based on management's consideration of current market costs to execute a similar lease. These direct lease origination costs are
included in deferred lease costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining
terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the
in-place leases over a market absorption period for a similar lease. These lease intangibles are included in intangible lease assets in the
accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
Estimates of the fair values of the tangible and intangible assets require us to estimate market lease rates, property operating expenses,
carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property is held for
investment. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocations, which could
impact the amount of our reported net income attributable to us.
Valuation of Real Estate Assets and Investments in Joint Ventures Which Hold Real Estate Assets
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and
related intangible assets, both operating properties and properties under construction, in which we have an ownership interest, either
directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present for
wholly-owned properties, which indicate that the carrying amounts of real estate and related intangible assets may not be recoverable,
we assess the recoverability of these assets by determining whether the carrying value will be recovered from the undiscounted future
operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted
future cash flows do not exceed the carrying value, we adjust the real estate and related intangible assets to the fair value and
recognize an impairment loss. For our investments in unconsolidated joint ventures, we assess the fair value of our investment, as
compared to our carrying amount. If we determine that the carrying value is greater than the fair value at any measurement date, we
must also determine if such a difference is temporary in nature. Value fluctuations which are “other than temporary” in nature are then
recorded to adjust the carrying value to the fair value amount.
Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of
current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years
the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis,
including capitalization and discount rates, could result in an incorrect assessment of the property’s fair value and, therefore, could
result in the misstatement of the carrying value of our real estate and related intangible assets and our net income attributable to
Piedmont.
Goodwill
Goodwill is the excess of cost of an acquired entity over the amounts specifically assigned to assets acquired and liabilities assumed in
purchase accounting for business combinations, as well as costs incurred as part of the acquisition. We test the carrying value of our
goodwill for impairment on an annual basis, or on an interim basis if an event occurs or circumstances change that would indicate the
carrying amount may be impaired. Such interim circumstances may include, but are not limited to, significant adverse changes in legal
factors or in the general business climate, adverse action or assessment by a regulator, unanticipated competition, the loss of key
personnel, or persistent declines in an entity’s stock price below carrying value of the entity. We have the option, should we choose to
use it, to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is
more likely than not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of events or
circumstances, we conclude that the estimated fair value is greater than the carrying amount, then performing the two-step impairment
test is unnecessary. However, if we chose to forgo the availability of the qualitative analysis, the test prescribed by authoritative
accounting guidance is a two-step test. The first step involves comparing the estimated
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fair value of the entity to its carrying value, including goodwill. Fair value is determined by adjusting the trading price of the stock for
various factors including, but not limited to: (i) liquidity or transferability considerations, (ii) control premiums, and/or (iii) fully
distributed premiums, if necessary, multiplied by the common shares outstanding. If such calculated fair value exceeds the carrying
value, no further procedures or analysis is required. However, if the carrying value exceeds the calculated fair value, goodwill is
potentially impaired and step two of the analysis would be required. Step two of the test involves calculating the implied fair value of
goodwill by deducting the fair value of all tangible and intangible net assets of the entity from the entity’s fair value calculated in step
one of the test. If the implied value of the goodwill (the remainder left after deducting the fair values of the entity from its calculated
overall fair value in step one of the test) is less than the carrying value of goodwill, an impairment loss would be recognized. We have
determined through the testing noted above that there are no indicators of impairment related to our goodwill as of March 31, 2014.
Investment in Variable Interest Entities
Variable Interest Entities (“VIEs”) are defined by GAAP as entities in which equity investors do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial support from other parties. If an entity is determined to be a
VIE, it must be consolidated by the primary beneficiary. The primary beneficiary is the enterprise that has the power to direct the
activities of the VIE that most significantly impact the VIE’s economic performance, absorbs the majority of the entity’s expected
losses, or receives a majority of the entity’s expected residual returns. Generally, expected losses and expected residual returns are the
anticipated negative and positive variability, respectively, in the fair value of the VIE’s net assets. When we make an investment, we
assess whether the investment represents a variable interest in a VIE and, if so, whether we are the primary beneficiary of the VIE.
Incorrect assumptions or assessments may result in an inaccurate determination of the primary beneficiary. The result could be the
consolidation of an entity acquired or formed in the future that would otherwise not have been consolidated or the non-consolidation
of such an entity that would otherwise have been consolidated.
We evaluate each investment to determine whether it represents variable interests in a VIE. Further, we evaluate the sufficiency of the
entities’ equity investment at risk to absorb expected losses, and whether as a group, the equity has the characteristics of a controlling
financial interest. See Note 5 to our accompanying consolidated financial statements for further detail on our investment in variable
interest entities as of March 31, 2014.
Interest Rate Derivatives
We periodically enter into interest rate derivative agreements to hedge our exposure to changing interest rates on variable rate debt
instruments. As required by GAAP, we record all derivatives on the balance sheet at fair value. We reassess the effectiveness of our
derivatives designated as cash flow hedges on a regular basis to determine if they continue to be highly effective and also to determine
if the forecasted transactions remain highly probable. Currently, we do not use derivatives for trading or speculative purposes.
The changes in fair value of interest rate swap agreements designated as effective cash flow hedges are recorded in other
comprehensive income (“OCI”), and subsequently reclassified to earnings when the hedged transactions occur. Changes in the fair
values of derivatives designated as cash flow hedges that do not qualify for hedge accounting treatment, if any, would be recorded as
gain/(loss) on interest rate swap in the consolidated statements of income. The fair value of the interest rate derivative agreement is
recorded as interest rate derivative asset or as interest rate derivative liability in the accompanying consolidated balance sheets.
Amounts received or paid under interest rate derivative agreements are recorded as interest expense in the consolidated income
statements as incurred. All of our interest rate derivative agreements as of March 31, 2014 are designated as cash flow hedges. See
Note 4 to our accompanying consolidated financial statements for further detail on our interest rate derivatives as of March 31, 2014.
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Stock-based Compensation
We have issued stock-based compensation in the form of deferred stock awards to our employees and directors. For employees, such
compensation has been issued pursuant to our Long-term Incentive Compensation ("LTIC") program. The LTIC program is comprised
of an annual deferred stock grant component and a multi-year performance share component. Awards granted pursuant to the annual
deferred stock component are considered equity awards and expensed straight-line over the vesting period, with issuances recorded as
a reduction to additional paid in capital. Awards granted pursuant to the performance share component are considered liability awards
and are expensed over the service period, with issuances recorded as a reduction to accrued expense. The compensation expense
recognized related to both of these award types is recorded as property operating costs for those employees whose job is related to
property operation and as general and administrative expense for all other employees and directors in the accompanying consolidated
statements of income. See Note 9 to our accompanying consolidated financial statements for further detail on our stock-based
compensation as of March 31, 2014.
Contractual Obligations
Our contractual obligations as of March 31, 2014 are as follows (in thousands):
Payments Due by Period
Contractual Obligations
Long-term debt(1)
Less than
1 year
Total
$ 2,034,525
Operating lease obligations(4)
Total
$
43,213
—
1-3 years
$
450
$ 2,077,738
$
450
844,525
(2) (3)
$
902
$
More than
5 years
3-5 years
845,427
440,000
$
902
$
440,902
750,000
40,959
$
790,959
(1)
Amounts include principal payments only and balances outstanding as of March 31, 2014. We made interest payments, including payments under our
interest rate swaps, of approximately $16.1 million during the three months ended March 31, 2014, and expect to pay interest in future periods on
outstanding debt obligations based on the rates and terms disclosed herein and in Note 4 of our accompanying consolidated financial statements.
(2)
Includes the $300 Million Unsecured 2011 Term Loan which has a stated variable rate; however, we entered into interest rate swap agreements which
effectively fix, exclusive of changes to our credit rating, the rate on this facility to 2.69% through maturity. As such, we estimate incurring, exclusive of
changes to our credit rating, approximately $8.1 million per annum in total interest (comprised of combination of variable contractual rate and settlements
under interest rate swap agreements) through maturity in November 2016.
(3)
Includes the balance outstanding as of March 31, 2014 of the $500 Million Unsecured Line of Credit. However, Piedmont may extend the term for up to one
additional year (through two available six month extensions to a final extended maturity date of August 21, 2017) provided Piedmont is not then in default
and upon payment of extension fees.
(4)
Two properties (the 2001 NW 64th Street building in Ft. Lauderdale, Florida and the River Corporate Center building in Tempe, Arizona) are subject to
ground leases with expiration dates of 2048 and 2101, respectively. The aggregate remaining payments required under the terms of these operating leases as
of March 31, 2014 are presented above.
Commitments and Contingencies
We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 8 of our consolidated
financial statements for further explanation. Examples of such commitments and contingencies include:
• Commitments Under Existing Lease
Agreements;
• Contingencies
Related
Audits/Disputes; and
Letters
•
Credit.
to
Tenant
of
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our future income, cash flows, and fair values of our financial instruments depend in part upon prevailing market interest rates.
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency, exchange rates, commodity prices, and
equity prices. Our exposure to market risk includes interest rate fluctuations in connection with borrowings under our $500 Million
Unsecured Line of Credit, and portions of our bank term loans. As a result, the primary market risk to which we believe we are
exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic
and political considerations, and other factors that are beyond our control contribute to interest rate risk. Our interest rate risk
management objectives are to limit the impact of interest rate changes on earnings and cash flow primarily through a low-to-moderate
level of overall borrowings, as well as managing the variability in rate fluctuations on our outstanding debt. As such, a significant
portion of our debt is based on fixed interest rates to hedge against instability in the credit markets. We have
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effectively fixed the interest rate on the entire balance of our $300 Million Unsecured 2011 Term Loan through interest rate swap
agreements, as well as $200 million of the $300 million principal balance of the $300 Million Unsecured 2013 Term Loan, in both
cases provided that we maintain our corporate credit rating. We do not enter into derivative or interest rate transactions for speculative
purposes.
All of our debt was entered into for other than trading purposes, and the estimated fair value of our debt as of March 31, 2014 and
December 31, 2013 was approximately $2.0 billion, for each period. Our interest rate swap agreements in place as of March 31, 2014
carried notional amounts totaling $500 million. Of these interest rate swap agreements, the agreements which hedge the cash flows
under our $300 Million Unsecured 2011 Term Loan have fixed interest rates of 2.69%, while the remaining agreements hedge $200
million of the $300 Million Unsecured 2013 Term Loan with a fixed interest rate of 2.79%, in both cases provided that we maintain
our corporate credit rating. See Notes 3, 4 and 6 of our accompanying consolidated financial statements for further detail.
As of March 31, 2014, all of our outstanding debt, except for amounts outstanding under our $500 Million Unsecured Line of Credit
and $100 million of our $300 Million Unsecured 2013 Term Loan, are subject to fixed, or effectively fixed, interest rates. Our total
outstanding debt subject to fixed or effectively fixed interest rates has an average effective interest rate of approximately 3.99% per
annum with expirations ranging from 2015 to 2024. A change in the market interest rate impacts the net financial instrument position
of our fixed-rate debt portfolio but has no impact on interest incurred or cash flows.
As of March 31, 2014, we had $272.0 million outstanding on our $500 Million Unsecured Line of Credit. Our $500 Million
Unsecured Line of Credit currently has a stated rate of LIBOR plus 1.175% per annum or the prime rate, at our discretion. Draws
outstanding as of March 31, 2014 were subject to a blended rate of 1.34% as of March 31, 2014. To the extent that we borrow
additional funds in the future under the $500 Million Unsecured Line of Credit or potential future variable-rate lines of credit, as well
as $100 million of our $300 Million Unsecured 2013 Term Loan which is not subject to hedging arrangements,we would have
exposure to increases in interest rates, which would potentially increase our cost of debt. Additionally, a 1.0% increase in variable
interest rates on these outstanding borrowings as of March 31, 2014 would increase interest expense approximately $3.7 million on a
per annum basis.
ITEM CONTROLS AND
4.
PROCEDURES
Management’s Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive
Officer and the Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the quarterly period
covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that
our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a
reasonable level of assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including
providing a reasonable level of assurance that information required to be disclosed by us in the reports we file under the Exchange Act
is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2014 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM LEGAL
1.
PROCEEDINGS
We are from time to time a party to other legal proceedings, which arise in the ordinary course of our business. We are not currently
involved in any litigation the outcome of which would, in management’s judgment based on information currently available, have a
material adverse effect on our results of operations or financial condition, nor is management aware of any such litigation threatened
against us during the quarter ended March 31, 2014 requiring disclosure under Item 103 of Regulation S-K.
ITEM RISK FACTORS
1A.
There have been no known material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the
year ended December 31, 2013.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a There were no unregistered sales of equity securities during the first
) quarter 2014.
Not (
applicable.
b
)
(c)
During the quarter ended March 31, 2014, Piedmont repurchased shares of its common stock in the open market, in
order to reissue such shares under its dividend reinvestment plan (the "DRP"), as well as repurchasing and retiring
shares as part of our previously announced stock repurchase plan.
Of the 3,323,392 shares repurchased during the first quarter 2014, 3,183,100 shares (at an average price of $16.54
per share) related to repurchases of our common stock pursuant to our previously announced stock repurchase
plan, and 140,292 shares (at an average price of $16.55 per share) related to shares purchased by our transfer agent
on the open market and conveyed to participants in the DRP. The aggregate stock repurchases for the quarter
ended March 31, 2014 are as follows:
Total Number of
Shares Purchased
(in 000’s)
Period
January 1, 2014 to January 31,
2014
February 1, 2014 to February
28, 2014
March 1, 2014 to March 31,
2014
Average Price Paid
per Share
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plan
Maximum Approximate
Dollar Value of Shares
Available That May
Yet Be Purchased
Under the Plan
(in 000’s)(1)
(in 000’s)(1)
2,940
$
16.56
2,940
$
41,144
233
$
16.34
233
$
37,327
150
$
16.56
10
$
37,157
3,323
$
16.54
3,183
(1)
Total
(1)
Under our amended and restated DRP, as set forth in a Current Report on Form 8-K filed February 24, 2011, we have the option to either
issue shares that we purchase in the open market or issue shares directly from Piedmont from authorized but unissued shares. Such election
will take place at the settlement of each quarterly dividend in which there are participants in our DRP, and may change from quarter to
quarter based on our judgment of the best use of proceeds for Piedmont. Therefore, the "Maximum Approximate Dollar Value of Shares
Available That May Yet Be Purchased Under the Program" relates only to the stock repurchase plan. The stock repurchase plan was
initially announced for $300 million in our Quarterly Report on Form 10-Q filed November 3, 2011. On October 30, 2013, our board of
directors amended and restated the plan to authorize and additional $150 million in stock repurchases over the next two years. The stock
repurchase plan is separate from shares purchased for DRP issuance.
ITEM DEFAULTS UPON SENIOR
3.
SECURITIES
Not applicable.
ITEM MINE SAFETY
4.
DISCLOSURES
Not applicable.
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ITEM OTHER
5.
INFORMATION
None.
ITEM EXHIBITS
6.
The Exhibits required to be filed with this report are set forth on the Exhibit Index to First Quarter 2014 Form 10-Q of Piedmont
Office Realty Trust, Inc. attached hereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PIEDMONT OFFICE REALTY TRUST, INC.
(Registrant)
Dated: April 30, 2014
By:
/s/ Robert E. Bowers
Robert E. Bowers
Chief Financial Officer and Executive Vice President
(Principal Financial Officer and Duly Authorized
Officer)
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EXHIBIT INDEX
TO
FIRST QUARTER 2014
FORM 10-Q
OF
PIEDMONT OFFICE REALTY TRUST, INC.
Exhibit
Number
Description of Document
3.1
Third Articles of Amendment and Restatement of Piedmont Office Realty Trust, Inc. (f/k/a Wells Real Estate
Investment Trust, Inc.) (the “Company”) (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2009 filed on March 16, 2010)
3.2
Articles of Amendment of the Company effective June 30, 2011 (incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K filed on July 6, 2011)
3.3
Articles Supplementary of the Company effective June 30, 2011 (incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed on July 6, 2011)
3.4
Amended and Restated Bylaws of Piedmont Office Realty Trust, Inc. (incorporated by reference to Exhibit 3.2 to the
Company’s current Report on Form 8-K filed on January 22, 2010)
4.1
Indenture, dated March 6, 2014, by and among Piedmont Operating Partnership, LP, the Company, and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K, filed on March 6, 2014)
4.2
Supplemental Indenture, dated March 6, 2014, by and among Piedmont Operating Partnership, LP, the Company,
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K, filed on March 6, 2014)
4.3
Form of 4.450% Senior Notes due 2024 (included in Exhibit 4.2) (incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K, filed on March 6, 2014)
31.1
Rule 13a-14(a)/15d-14(a) Certification, executed by Donald A. Miller, CFA, Principal Executive Officer of the
Company
31.2
Rule 13a-14(a)/15d-14(a) Certification, executed by Robert E. Bowers, Principal Financial Officer of the Company
32.1
Certification required by Rule 13a-14(b)/15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States
Code, executed by Donald A. Miller, CFA, Chief Executive Officer and President of the Company
32.2
Certification required by Rule 13a-14(b)/15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States
Code, executed by Robert E. Bowers, Chief Financial Officer and Executive Vice-President of the Company
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
46
EXHIBIT 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Donald A. Miller, CFA, certify that:
1.
I have reviewed this Form 10-Q for the quarter ended March 31, 2014 of Piedmont Office Realty Trust,
Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5.
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Dated: April 30, 2014
By: /s/ Donald A. Miller, CFA
Donald A. Miller, CFA
Chief Executive Officer and President
(Principal Executive Officer)
EXHIBIT 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert E. Bowers, certify that:
1.
I have reviewed this Form 10-Q for the quarter ended March 31, 2014 of Piedmont Office Realty Trust,
Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5.
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Dated: April 30, 2014
By: /s/ Robert E. Bowers
Robert E. Bowers
Chief Financial Officer and Executive Vice
President (Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the Report of Piedmont Office Realty Trust, Inc. (the “Registrant”) on Form 10-Q for the quarter ended March 31,
2014, as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Donald A. Miller, CFA, Chief Executive
Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Registrant.
By:
/s/ Donald A. Miller, CFA
Donald A. Miller, CFA
Chief Executive Officer and President
April 30, 2014
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the Report of Piedmont Office Realty Trust, Inc. (the “Registrant”) on Form 10-Q for the quarter ended March 31,
2014, as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Robert E. Bowers, Chief Financial
Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Registrant.
By:
/s/ Robert E. Bowers
Robert E. Bowers
Chief Financial Officer
and Executive Vice President
April 30, 2014